Further, in insurances on property or against liabilities the law applies the principle that the policyholder must not make a profit if the event insured against happens. The insurance contract is said to be one of indemnity, to make good the insured's loss and no more.
Suppose, for example, that property is insured for more than its value and is destroyed as a result of an event insured against.
The insured's recovery will be limited to the actual value.
Again, if the property has been insured twice over and is destroyed, the insured will not be entitled to recover in all more than its total value. And if, when insured property is destroyed in circumstances which give the insured a right to claim both against his own insurer and against some other person who was responsible for the damage, the insured must allow the insurer to have the benefit of the right to claim against the other person.
Utmost good faith
Contracts of insurance form a special class of contract in that the law requires both parties to them, the insured and the insurer, to exercise the utmost good faith towards each other. In particular when anyone applied for insurance (he is known as the proposer) he must tell the prospective insurer every fact that he knows or ought to know which would influence a prudent insurer in deciding whether to grant the insurance and, if so, on what terms.
To take an example, a proposer for life insurance must reveal if he has recently had a heart attack as this may be a sign that he is more likely to die prematurely.
Similarly if a motorist is seeking to insure his car and has had a number of recent road accidents he must reveal that fact so that the insurer can decide whether to charge him an above-normal premium because he appears to be especially prone to accidents. If any fact of the kind described is not disclosed by the proposer, or if any fact is misstated, even unintentionally, the insurer is entitled to refuse to pay a claim under the policy. Insurers maintain that this is only right because the proposer knows the facts and the insurer does not. The insurer needs to be put in a fair position to decide whether to accept an insurance and on what terms.
We have seen that insurance involves the payment of premiums by persons known as the insured to an insurer who undertakes to pay a sum of money or its equivalent in kind if the policyholder suffers financially when the event insured against happens.
The agreement between the insured and the insurer is usually expressed in a document known as a policy and the insured is often referred to as the policyholder.
It is sometimes said that insurance is like gambling. In betting, for example, one gives a sum of money to a bookmaker who agrees to pay out... see: Legal Principles
Our insurance website is an independent marketing website which acts as an introducer to 'whole of market' companies who offer specialist Independent Financial Advice. Each company is authorised and regulated by the Financial Services Authority.
We are not authorised to give advice and we are not liable for any financial advice provided by, or obtained through a third party. The information published on this website is for information purposes only. This site has been approved for compliance purposes by a Firm of Independent Financial Advisors who are authorised and regulated by the Financial Services Authority (FSA). The Chartered Insurance Institute
To contact us, send an email and we will get back to you as soon as we are able. If you are looking for independent life insurance quotations then click here. If you are looking for any of the folliowing: Car insurance
Bike insurance, Travel insurance, Home insurance, Life insurance, Landlord insurance, Pet insurance, Medical insurance, Dental insurance, Business insurance please click here
Have something to say?
We publish financial articles on this site if they fulfil our requirments. more>>