The main role of insurance is to pay the insured when a loss or misfortune occurs. However, note that payment is only made to those who have taken insurance cover.
Insurance is based on trust of both the buyer (insured) and seller (insurer) of the insurance policy. To make this trust work, insurance is governed by six main rules called principles.
Insurance is based on trust of both the buyer (insured) and seller (insurer) of the insurance policy. To make this trust work, insurance is governed by six main rules called principles
The principles of buying Insurence include
- Utmost Good faith,
- Insurable interest,
- Proximate cause,
While it is important to make you understand each of these principles, we shall today discuss the principle of Utmost Good Faith. The principle of utmost good faith requires the insured to provide correct information to the insurer BE TRUTHFUL and CAREFULL WHEN BUYING INSURANCE about the property or life being insured.
The insured must also tell the truth when making a claim following a loss. When proposing to buy insurance, you will often be asked to fill a proposal form. The proposal form is designed to obtain information from you concerning the property or life you want to insure. The form contains relevant questions which you must answer truthfully. It has a section called declaration which you must sign to prove that all the information you have given in the form is correct and true to the best of your knowledge and belief. Under ordinary commercial contracts, one is given the opportunity to examine what they want to buy and therefore make a decision based on what they have seen.This is, however, not the case with insurance where the facts upon which the contract is based are only known by the party buying insurance.
For example, when one is buying motor vehicle insurance the insurer will ask for the value of the car, its model, make, age and the like. This will make the insurer understand the level of risk in the car. Such information will enable the insurer to choose to insure the car or not and therefore it must be as accurate as possible. It is the person buying property or life insurance who knows all the risks he wants to insure, while the insurance company does not know yet it is expected to pay in the event of a loss. Further the principle of utmost good faith is in essence a security against fraud.This is because there are some instances where some people present fraudulent claims to insurance companies.
Here are the some details which we need to be careful while buying the term insurance.
The amount of cover in a term insurance should be sufficient enough to cover all your outstanding liabilities and your family’s future goal. The maximum amount of coverage that you can get depends on your annual income. Typically, the maximum coverage that insurance companies provide varies between 10-20 times your annual income.
Provide correct details.
While buying a term insurance, ensure that you provide correct details to the insurer as your premium will be decided based on the details you provide. If you have any pre-existing disease like high blood pressure or diabetes, then don’t hide the fact. Every year many insurance claims get rejected by companies due to suppression of fact.
Mode of premium payment.
Every year many insurance policies get lapsed due to non-payment of premium on time. Also, it is quite common that you miss the premium due date. So it is always advisable to pay the premium through the ECS mode either monthly or quarterly.