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Insurance Principles, What Are and How Are They Explained?

Insurance Principles, What Are and How Are They Explained?
Many people still view insurance as something that is not important. Even though the function of insurance is very much, it is also useful for our lives in the future. There are also several insurance principles that must be the basis for its implementation

Many people still view insurance as something that is not important. Even though the function of insurance is very much, it is also useful for our lives in the future. There are also several insurance principles that must be the basis for its implementation.

Before buying a product, you as a prospective Policy Holder or the Insured (who has insurance) must understand whether the product and the insurance company hold insurance principles.

The following are 6 main insurance principles that must exist:

1. Insurance Principles Regarding Insurable Interest

Insurable means "can be insured" and interest means "interest". This means that when an insurance policyholder wants to buy an insurance product, there is an "interest" in insuring the "object" that is the target of insurance protection.

For example, you become a policyholder of a health insurance and your mother becomes the insured. This means that you have an “interest” in being able to “insure” your mother because she is getting old and has health risks. That's why you insured mom.

This “object” can be in the form of property that you have or even the health and soul of a person. In general, the company will provide insurance services that are in accordance with the needs of the Insured.

Based on this insurance principle, objects must be legal and have no potential to violate the law.

After the insurance policyholder determines the object to be insured, the insurance party will guarantee to financially replace the object when there is a risk and unexpected things that can damage or endanger the object.

2. Good Faith (Utmost Good Faith)

Then, good faith becomes the next insurance principle. The insurance function will run smoothly if the user or the insurance policy holder is able to provide honest information and facts regarding the condition of the object being insured.

For example, if you have high blood pressure, you should not lie to get a lower insurance premium. If the company finds out about this condition when you file an insurance claim, the company has the right to reject your claim.

Likewise, the insurance company must also have good intentions to explain clearly and transparently what the risks are. These risks include underwriting, types of liability, and the amount of financial compensation.

In addition, there are risks that go into the benefits of the product and some that do not (insurance exceptions). If the company promises a product to cover X benefits and it is written in the insurance policy as such, you are entitled to these benefits when submitting a claim.

So, basically this insurance principle exists to protect both the customer and the insurance company. That way, both parties can benefit safely.

3. Proximal Cause


The meaning of this principle is any cause or cause that can be used as a basis for making claims against the risk that befalls the "object" due to an unexpected event.

Determination of the proximal cause is useful for determining whether you can accept a claim and can affect the value of the claim you receive as well.

4. Insurance Principles Regarding Indemnity (Indemnity)

Usually the insurance company has the right to determine the amount of compensation for an insured object. When buying an insurance policy, the Policy Holder also agrees to the adjustment of the value.

The amount of compensation is also affected by the type of disaster or object risk that may occur.

5. Transfer of Rights or Trust (Subrogation)

This insurance principle means the transfer of rights from the Policy Holder to the insurance company after the payment of the claim. This assessment is seen after the policyholder feels the rights given in the form of insurance coverage from the insurance company.

6. Contribution

The meaning of contribution here is the amount of insurance contribution value that the Policy Holder must pay to the insurance company. This contribution serves as a form of agreement in accordance with the amount of value or value of the object that has an insurable interest.