INSURANCE

Definition
Insurance is a contract where the Insurer, in return for a sum of money called the
premium, agrees with the Insured to pay a specified sum of money, on the happening
of a specific event (death/accident), or to indemnify the Insured against any loss caused
by the risk insured against (fire).
In insurance the Insured must have some interest apart from the contract: an
insurable interest.
All terms of the contract are treated as conditions and the Insurer shall be able to avoid
liability if the proposal form is incorrect, even if the wrong answer was given innocently
and does not relate to a material fact.
The principle of good faith
All contracts of insurance are uberrimae fidei. (uberrima fides, in lat. means utmost
good faith!, literally most abundant faith!). "his means that all parties to an insurance
contract must deal in good faith, making a full decalaration of all material facts in the
insurance proposal. A fact is material if it would influence the #udgement of a prudent
Insurer in deciding whether to accept the risk, and if so at what premium and on what
conditions.
A policy of insurance is voidable for misrepresentation, whether innocent or fraudulent.
"he Insurer can only avoid if the misrepresentation is materialy and substantially false.
Insurable interest
Insurable interest means that the Insured must be so circumstanced in relation to the
sub#ect matter of the insurance as to benefit by its e$istence or be pre#udiced by its
destruction.
"he common law does not re%uire the Insured to have an insurable interest. If the contract
is one of indemnity, an Insured who has no interest at the time of the loss will have no
claim, he losses nothing, therefore no idemnity is necessary. Any insurance on the life of
a person is void unless the person taking out the policy has an insurable interest in the life
insured.
Indemnity
An indemnity policy is one under which the Insured will be compensated for his actual
loss so far as it does not e$ceed the sum insured. A valued policy may agree the measure
of indemnity at the time when the policy is issued instead of waiting until the time of the
loss. &uch a contract is valid unless the over'evaluation is so gross as to amount to a
wager. "he Insured can recover the agreed value if the loss is total. If the loss is partial he
can recover such proportion of the agreed value as is represented by the depreciation in
the actual value.
"he Insured can never recover more than the sum for which the property is insured,
If the policy is not a valued policy, the measure of indemnity is the market value of the
property at the time and place of the loss (in the event of total loss) / the cost of repairs
(in the event of partial loss).
If the property is under'insured, the Insurer is still liable for a partial loss up to the full
limit of the sum insured.
All contracts of insurance are contracts of indemnity e$cept: life assurance,
assurance against accident to the insured himself or illness of the insured himself.
Subrogation
If the contract is one of indemnity the Insurer has a right of subrogation (e$: having paid
the Insured his compensation)( they are permitted to take over any rights that the Insured
has against the person who caused the loss. "he Insurer brings the action in the name of
the Insured, who must lend his name in return for a promise that he shall not be liable
for cost.
If the Insured renounces any right of action he has against a third party, he must repay to
the Insurer the benefit of which he has deprived them.
Contribution
)here there is more than one policy enforceable at the time of loss covering the same
sub#ect matter, risk and interest the Insured may recover the total loss from either Insurer.
Any Insurer who pays more than his share, may claim a contribution from the others in
proportion to the sum insured with each.
Risk
*oss resulting from negligence is covered.
A loss will not be covered if it is a loss of profits or if it is caused by: the Insured+s own
misconduct / ordinary wear and tear.
Types of insurance contract
Life Assurance, Fire Insurance, Motor Vehicle Insurance, Insurance Against Theft,
Accident Insurance, m!loyer"s Com!ulsory Insurance#
Life Assurance (assurance = where the event concerned must occur, like death) , is a
contract by which the Insurer, in return for either a sum or annual payments over a
specified period, undertakes to pay the person for whose benefit the insurance is made, a
sum of money on the death of the person whose life is insured.
Insurable interest , the interest must be a pecuniary interest and must e$ist at the date of
the contract but need not continue until the date of the death. A person may insure his
own life for his own benefit for any sum he wishes, even though he intends when
insuring to assign the policy to another person. &pouses have an unlimited insurable
interest in each other lives. A creditor has an insurable interest in the life of the debtor up
to the amount of the debt at the date of insurance.
Suicide , If the insured is insane when he commits suicide the insurance money is
recoverbale unless the policy otherwise provides. -oney is not generally payable unser
a policy when the insured deliberately brings about the event insured against.
Assignment , "he right to recieve the policy money is transferred from the person
originally entitled to the asignee."he asignee must protect his interest in the policy by
notifying the Insurers. "he assignee has a right to sue the Insurers, if necessary for the
policy money.
Fire Insurance (insurance = when the event may occur, like an accident/theft) , it
gives the Insured an indemnity covering loss caused by fire (it could also include
damage caused by the water used to fight the fire) during a specified period. "he Insured
cannot recover if he deliberately starts the fire, but if the loss is merely caused by his
negligence this does not defeat his claim. It is a contract of indemnity, so the insurable
interest must e$ist not only when the contract is made but also when the loss occurs. At
common law, the Insured was not bound to use money received from the insurance
company to reinstate the property..e was entitled to be indemnified in cash which he
could use as he wishes.
otor !ehicle Insurance , a motorist must insure against any liability he may incur as a
result of causing the death or in#ury of a third party. If the owner of the motor vehicle is
not insured against liability for causing in#ury to other party, he has committed a criminal
offence and he is also liable to pay damages to the in#ured party. A provision in the policy
which e$cludes the Insurer+s liability to indemnify the Insured because of his age,
physical or mental condition, the condition of the vehicle or the number of passengers
carried is void.
Insurance Against Theft , the principles aplicable to life and fire insurance also apply
to theft.
Accident Insurance , life assurance policies usually also cover personal in#ury to the
policy holder. A person who does not have life assurance may either insure himself
against personal in#ury or insure against liability arising from in#uries to third parties. .e
shall not be able to claim under a liability policy in respect of a deliberate unlawful act by
himself. An in#ured third party may sue the Insurer directly if the Insured is bankrupt or if
the insured ia a complany which has gone into li%uidation. Employers" Insurance ' an
employer may insure himself against liability for in#ury or disease sustained by his
employees.