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Distinguish between the insurance principles (i) Utmost good faith and (ii) Indemnity - Leaving Cert Business - Question 7 - 2005
Question 7
Distinguish between the insurance principles (i) Utmost good faith and (ii) Indemnity. (i) (ii)
Worked Solution & Example Answer:Distinguish between the insurance principles (i) Utmost good faith and (ii) Indemnity - Leaving Cert Business - Question 7 - 2005
Step 1
Utmost good faith
Answer
The principle of utmost good faith (uberrima fides) requires that all material facts must be disclosed to the insurer. This means that any information which may influence the insurer's decision to accept or reject the risk, or in premium calculation, must be provided. If the insured fails to disclose such information, the insurer has the right to declare the contract void and deny any claims.
Step 2
Indemnity
Answer
The principle of indemnity ensures that the insured is compensated for actual losses incurred, up to the amount of the insurance policy. It stipulates that there should be no profit made from the insurance claim. The insured should be restored to the financial position held prior to the loss, but not be enriched beyond that. In the case of underinsurance, only a proportion of the loss will be paid.