The LIC AAO exam which is going to take place on May 4, 2019, has come with a new section of Insurance and Financial Market Awareness. We have come up with a series of articles to help you out with this section. Keep checking the series as we plan to add more study material over here. Today, we are going to cover the Principles of Insurance which are five in number. Let’s have a look:
- Principle of Utmost Good Faith (uberrima fides)
- Principle of Indemnity
- Principle of Subrogation
- Principle of causa proxima
- Principle of Insurable Interest
Principle of Utmost Good Faith (uberrima fides)
This principle implies that all material information regarding the subject matter of insurance should be disclosed by both: the insured and the insurer. An insurer has a right to avoid the contract if full disclosure isn’t made by the insured. In case there is a innocent/ fraudulent misrepresentation- the contract may become voidable depending on the degree of falseness. A contract can also become voidable if a fact (which may influence the underwriter’s decision if disclosed) is known to one party and it is not known to the other.
Principle of Indemnity
This principle implies “To bring back the insured to the financial position where he was prior to the happening of loss”. To simplify, it ensures to make good the insured’s loss and to bring him back to the previous position. This is to ensure that the insured doesn’t make the profit out of the proceeds. In the case of “underinsurance”, an average clause is applied and the claim payable is less than the actual loss. And in the case of “over insurance”, compensation will be made only to the extent of covering the loss and profit can’t be made.
Principle of Subrogation
This principle implies that in case an insurer pays full compensation for any insured loss, the insurer holds the legal rights to the insured property which also includes future gains for this property. In other words, after the payment of an insurance claim has been made, the insurers shall be entitled to take over the legal right of the insured against the liable third party for the purpose of recovery. The purpose of subrogation is to hold the negligent third party responsible for the loss and to prevent the insured from collecting twice for the loss- once each from the insurance company and the third party.
Principle of causa proxima
The Principle of Proximate Cause means when a loss is caused by more than one causes, the proximate or the nearest cause should be taken into consideration to decide the liability of the insurer. In other words, this principle states that to find out whether the insurer is liable for the lost, the proximate (closest) and not the remote (furthest) must be looked into.
Principle of Insurable Interest
The assured have to have an insurable interest in the life or property insured. Insurable interest is that interest which considerably alters the position of the assured in the event of a loss taking place and if the event does not take place, he remains in the same old position. One who has to lose as a result of loss may be said to have insurable interest in the life or property insured.
Hope the above principles help you in your preparation. Wait for the next article in this series of Insurance & Financial Market Awareness. Also, consider taking a Free Mock Test of LIC AAO to get a frank assessment of your performance.
LIC AAO Study Material
Topics of Insurance Market Awareness
|1||History of the Insurance sector in India|
|2||Opening Up of the Insurance Sector|
|3||Current Scenario of the Life Insurance Industry|
|4||What is Insurance?|
|5||Principles of Insurance|
|6||An Overview of Life Insurance|
|7||An Overview of General Insurance|
|8||Insurance and Industries/ Business|
|9||All about IRDA|
|10||Roles and Functions of IRDA|
|11||Insurance Regulatory Framework|
|12||An Overview of LIC|
|13||Other institutions in Indian Insurance Market like Insurance Ombudsman|
|14||An Overview of Bancassurance|
|15||An Overview of ULIPs|
|16||Various Government Insurance Schemes|
|17||Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB – PM-JAY)|
|18||Pradhan Mantri Suraksha Bima Yojana (PM – SBY)|
|19||PM Jeevan Jyoti Bima Yojana (PMJJBY)|
|20||PM Fasal Bima Yojana (PM-FBY)|
|21||Other Important Government schemes|
|22||Insurance and Financial Market Awareness Definitions- PDF- Part 1|
Topics of Financial Market Awareness
|1||Indian Financial System- An Introduction|
|2||An Overview of Capital Market|
|3||An Overview of Money Market|
|4||Definitions of Different Types of Money Market Instruments|
|5||Primary and Secondary Market|
|6||Financial Institutions- Banking and Non-Banking|
|7||All about RBI|
|8||Roles and Functions of RBI|
|9||Other Market Regulators like SEBI|
|10||Payments Banks and Small Banks|
|11||Secondary Market and its Instruments|
|12||Mergers, Amalgamations and Takeovers|
|13||Important World Financial Bodies – World Bank, IMF etc.|
|14||An Overview of Bond Market|
|15||Insurance and Financial Market Awareness Definitions- PDF- Part 2|
Wishing you all the best for your preparation!