Insurance Basics and its Principles.

Hi guys,  we are here to discuss about Insurance and we will discuss this topic in detail.

Now firstly, let's start of by understanding. 

Insurance Basics and its Principles.

What is Insurance ?

Insurance is a contract between the insurer and the insured now, when you refer to insurer, that refers to the company that's selling you the insurance policy could be LIC, could be Burleson life, could be HDFC Standard Life and could be any of those companies that is selling you the insurance policy. 

Now,

The insured is you and I when we take up the policy we are called as the insurer.

Why would anyone go about taking up an insurance policy ? 

You take up an insurance policy because you want to protect yourself or your family in case an eventualities were to occur what eventualities that's not something I want to discuss but in case something were to happen an insurance company can compensate.

If this eventualities were to occur now you have an offer and a consideration that goes about happening here, the offer is the insurance company will take care of you and your family, if the eventualities were to occur. However the consideration that you need to pay, here is the premium each insurance policy has got its own premium depending upon the type of policy. 

You have the price or the value of the premium in fact varies there are some policies where in the premium is just a few hundred rupees per annum while there are some insurance policies where the premium could run into lakhs together per annum.

The principles of an Insurance.

Now firstly, let's understand the Principles of an Insurance. 

Utmost faith in Goods.

Now, 

First thing that you have there is the principle of  Utmost faith in goods, 

A principle of utmost faith refers to the insurer and the insured must be clear on the terms and conditions with in the contract.

Now let's say I am taking up a health insurance and the insurance company is going to ask me questions like does your family suffer from any heart problems because usually things like heart problems are in fact genetic in nature.

Now if this were to be true that is if my family were to be have a history of  heart problems, I am supposed to declare this in my Insurance policy, later on if  I were to get into some medical emergency and I have a heart problem, the insurance company may not compensate because I never mentioned these illnesses could come by any time in my life, at the same time the insurance company as well should be clear upon the terms and conditions from their side. 

Now, when you refer to health insurance especially the Insurance company will make it very clear what exactly they are going to compensate okay. Are they going to compensate you for the surgery or are they going to compensate you for everything else that includes in the hospitalization bill that is the medicine cost the nursing charges the consultation fee. 

All that are they going to take care of or are they going to take care of only the surgery a surgical cost so they need to be clear from their side and we need to be clear from our side as well. 

Insurable interest

The next thing that you have is Insurable Interest.

Now,

For example, If I were to take up an Insurance policy and let's say about three four months down the line I lose interest in that policy. however the three months when I have actually paid the premium I'm not going to get it back. 

I'm not going to get it back the reason is when I took up the Insurance policy I had the interest to get the benefits of the policy. later on if I change my mind or sir compare our circumstances were to change my interest or my opinion about that Insurance policy.

The company is not going to refund any part of my premium so that's what we refer to as insurable interest that is when you take up the policy you have the intention to get the benefits of the insurance contract.

Indemnity 

Now, Indemnity refers to replacing something which has been lost of course this is not possible with life insurance because for obvious reasons you can't replace someone who's been dead.

However, you could go about compensating them financially in case of fire insurance indemnity becomes quite common because you have a type of insurance policy where if the property has been damaged the insurance company could replace the assets which have been damaged.

If even with auto Insurances well in vacant Insurance as well if you have a windshield or a door which has been cracked or dented. 

You have the insurance company which will replace that with a new one so indemnity here refers to something which has been lost and or damaged and in this case it ends up getting replaced. 

Contribution 

Now, 

Contribution you can take up more than one Insurance policy although I strongly advise against it you do have the option and there is no authority that says you can't invest in this. 

I know a lot of people in fact when it comes to saving taxes they invest in multiple insurance plans because they're able to get certain tax benefits. 

Now, although you want to invest in multiple insurance plans the cost of investing in each of them purely depends on whether you want to or whether you are able to afford it or not.

If you can't then go ahead with just one policy but like I said there is no law that says that you can't go about taking more than one policy.

In fact I can take up a health insurance policy, buy from many companies, in fact let's say I find the policies of both Apollo and Religare very suitable to my requirements where both of them are able to compensate me for certain illnesses I can in fact take up both health insurance policies but then again the cost consideration must be taken. 

Subrogation 

Now, 

Subrogation refers to in some cases especially in auto Insurance you come across situations where the Insurance company is going to replace the part of  the automobile which has been damaged.

Now, let's say you got into a car accident, the door was tinted what the Insurance company would do is they'll replace the door with a new one for him. 

Now, what's going to happen to the old door the Insurance company has compensated you by replacing the old door with a new one what are they going to do with the old door is something which is up to them.

Let's say they were to sell it for the scrap value you will not be able to get any benefit from back there because your benefit ended after they replace the old door with a new one you cannot get any further benefit from the sale of that old door and the salvage value of that old or the same thing.

 

You could say for even fire Insurance if some property has been damaged in a fire and this property however has got some salvage value. The Insurance company will keep that salvage value they will compensate you by replacing what has been damaged. 

However, they will not give you any part of the compensation of the salvage value that.

Mitigation

Now,you have Mitigation,

Here refers to minimizing the risk from your side, minimizing the risk from your side the Insurance company you to minimize risk from your side. 

Say for example, If you take up a health Insurance policy it's not advice that you immediately take up smoking and drinking because this is going to affect you in the long term and this could in fact pose some serious health problems. 

Later on so you should protect yourself from any problems that could happen this could even mean if you are traveling in a two wheeler you are required to even wear a helmet when you are riding your bike even that is in fact a part of mitigation.

Causa Proxima

Then Causa Proxima refers to the nearest possible cause Insurance companies don't really look into the details of what may have happened but there's a car accident the policy would cover only a car accident they don't release consider. 

What is the real reason why it actually happened was it because they didn't see a pothole in the road they suddenly lost control that's something which they don't really look at it all they would look at is.

 

The nearest possible costs if you refer to illnesses especially if the illness is terminal they would just categorize it as a terminal illness. 

They would really not get into the details of  how did this person end up getting this and what he could have done in fact to avoid things like this so Causa Proxima refers to the nearest possible cause.