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Principles of Insurance Explained in English | What are the Principles of Insurance - YouTube
Channel: Insurance Decoder
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Hi friends welcome to insurance decoder. On
our channel you will find only insurance related
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videos. In this video I will tell you about
the principles of insurance. Friends whether
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you are a student or an insurance buyer or
an insurance agent, you shall be aware about
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the principles of insurance. In this video
I will explain the principles of insurance
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in a very easy and lucid way. I will use real
life examples to explain the principles. First
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principle of insurance is the principle of
utmost good faith. According to this principle,
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the person who is getting insurance shall
willingly disclose all the required information
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in a complete and true knowledge. You shall
not find any information asked by the insurance
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company. So you shall correctly inform about:
(i) Your health- if you have any kind of disease,
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your past medical history, any medicines you
are taking etc. (ii) you should also tell
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correctly about your income (iii) you should
also tell correctly about your family history,
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like if any of your parents or your siblings
have suffered from any kind of disease etc.
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(iv) you should also tell correctly about
your age, generally you have to produce any
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document which contains the date of birth.
(iv) you should also correctly tell about
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where you work, in which industry you work,
how risky is your job etc. Now let鈥檚 see
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principle number two, which is principle of
insurable interest. According to this principle
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you should have personal interest in the subject
matter of insurance. That means if you lose
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those persons or things you have direct loss.
So, for example you can take insurance for
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your son, your wife, and your parents, but
you cannot take insurance for your neighbour's
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son or for your friends. Losing your neighbour's
son or your friend may have emotional loss
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to you, but it will not have any kind of financial
loss. Similarly, you can take insurance for
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your car, your house, or your property but
you cannot take insurance for your friend's
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car, house or property. Now the principle
number 3 of the insurance is, the principle
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of indemnity. According to this principle,
insurance is not made for making profit, but
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it is made for compensating you against the
loss that has incurred to you. That means
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compensation paid cannot be more than the
losses incurred, a person earning rupees 5
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lakh a year cannot take insurance plan of
rupees 500 crore. Or you cannot take car insurance
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of rupees 10 lakh for a car pricing Rupees
500000. This is the reason insurance companies
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do not provide term insurance to an unemployed
person, or a housewife, or a student. Next
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principle is principle of contribution. This
principle is applicable when there are more
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than two insurers for the same underlying
property or asset. In this case the insurance
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company has the right to share the loss with
other insurancers. Now suppose you have taken
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an insurance of rupees 10 lakh from one company
and of rupees 10 lakh from another company.
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And in a fire incident, your total loss is
rupees 10 lakh. Now you go to insurance company
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number 1 and claim entire loss. The insurance
company will pay you the compensation, however
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now the insurance company number one will
approach to the other insurer, and ask for
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500000 rupees. Because both the insurance
companies had equal share in your property.
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This principle does not apply for Life Insurance,
wherein you can have multiple insurances,
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but still you have right to claim insurance
claims from all the insurance companies. Next
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principle is principle of subrogation, according
to this principle once the insured is paid
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for the losses, then the ownership right of
such property shipped to the insurance. You
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cannot take the benefit from the damaged asset.
For example if your bike or car is stolen
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and the insurance company has paid you the
compensation, thereafter you cannot have the
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ownership On The Lost car or bike. Now after
sometime, if the insurance company finds the
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bike or car it can sell them and you cannot
make any claim from the insurance company,
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because you have already been paid for your
damage. Next principle is principle of loss
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minimization. According to this principle
you should put all the efforts to minimise
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the loss to the insured asset. Opposite your
car is stolen then you should immediately
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call the police call the insurance company
and tell them about the loss. If there is
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fire in your car, you should immediately call
the fire brigade or if you have water or fire
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extinguisher you should use them, so that
the loss can be minimised. You cannot simply
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sit and watch, feeling that you have already
get them insured and the insurance company
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will pay you the compensation for the damage.
Next principle is principle of Causa Proxima
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(Nearest Cause). According to this principle
if your loss has caused because of two things,
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then the nearest cause should be taken into
consideration to decide the liability of the
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insurance. For example, there is a ship and
the Rat have made hole in it, because of which
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water entered into the ship. And the goods
loaded in the ship have damaged. In this case
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there are two causes of the incident, first
is the rat and the second is sea water. Even
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though rats have made hole in the ship, but
the actual cause of the damage was seawater.
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So, here the nearest cause is damage due to
sea water. So friends, these were the principles
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of insurance and I hope you have understood
them clearly. If you have liked the video
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please don't forget to smash the like button,
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