Essential Life Insurance Principles
There are two essential life insurance principles – PRINCIPLE OF UTMOST GOOD FAITH and PRINCIPLE OF INSURABLE INTEREST.
- The principle of utmost good faith says that it is the duty of the proposer to make full disclosure of all the relevant facts.
- In the event of failure to disclose material facts, the contract can be held to be void ab initio.
- The duty of disclosure in life insurance operates till the risk commences.
- The principle of utmost good faith is meant to protect the interests of the community of policyholders. It is important to ensure that the premium charged is correct and that no one gets an undue advantage and there is no adverse selection.
- If the information mentioned in the proposal are found to be substantially wrong, then the life insurance policy becomes invalid.
- If the life to be insured falls sick, that fact has to be informed to the insurer If it happens before the first premium receipt is issued.
- The principle of insurable interest says that the insured must have an insurable interest in the subject of insurance. To explain for an example- A husband has insurable interest in the life of his wife and vice-versa and likewise a company has an insurable interest in the life of a key valuable employee.
- The insurable interest in life insurance seems to be unlimited.
- Insurable interest must exist at the beginning of the life insurance policy.
- Insurance is meant to make losses and it cannot be used to make a profit.
Make sure you do your best to obtain the cheapest premiums achievable. This is often attained by living a healthy lifestyle and veering away from bad vices and not engaging in a lot of high-risk hobbies. As a result, you will have to pay smaller monthly premiums if you deemed a low-risk client by the life insurance company that you are seeking the services of.
You need to continually understand that when you get life insurance, the prices that you need to pay will mostly be based on your life span, the amount you need to be insured, and the amount of time you need to have the coverage for. This goes for all types of life insurance. It is important to keep a clean and balanced lifestyle to enable you to attain the best insurance premiums.
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