Principles of Insurance

The Principles of Insurance serve as the foundation for how insurance operates in Ireland. It defines the relationship between the policyholder and the insurance company. These principles help ensure fairness, transparency, reliability, and sustainability in the insurance industry. The main principles of insurance include:

Utmost Good Faith

The utmost good faith principle requires both the insured and the insurer to act honestly and provide complete and accurate information to each other. The insured must disclose all relevant information about the risk they want to insure, and the insurer must be transparent about the terms and conditions of the policy.

Insurable Interest

The insurable interest principle states that the insured must have a financial interest in the insured object or person. In other words, they must stand to suffer a financial loss if the insured item is damaged or if the insured person experiences harm.

Indemnity

The principle of indemnity ensures that the insured is compensated for the actual financial loss suffered due to an insured event. Insurance aims to restore the policyholder to the same financial position they were in before the loss without providing a profit.

Contribution

The contribution principle states if the same risk is insured with multiple insurers, the principle of contribution applies. In such cases, each insurer shares the claim cost proportionally, according to the coverage they provided.

Subrogation

The subrogation principle states when an insurer compensates the insured for a loss. The insurance company will gain the right to take legal action against any third party responsible for causing the loss. Subrogation allows the insurer to recover its costs from the responsible party.

Proximate Cause

The proximate cause principle states that only the most direct cause of a loss will be covered by insurance. If an event leads to a chain of other circumstances resulting in a loss, the proximate cause is the one considered for determining coverage.

These principles may vary slightly in different insurance products, for example, life insurance, property insurance and health insurance. The principle of insurance forms the fundamental framework for building insurance contracts and agreements.

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