Principles of Life Insurance and its Impact on Insurability12th May 2020
Life insurance plans help the insured’s family take care of their financial responsibilities and live a normal life after the demise of the policyholder. This means, when the policyholder passes away, the insurance provider will pay an accumulated amount to the loved ones of the deceased. However, there are some exemptions in this plan the beneficiary may not receive a death benefit if the insured dies after trying suicide, getting involved in violent activities and adventurous games.
A principle is a fundamental truth or statement upon which other truths or statements depend. Understanding the basic principles of life insurance allow you to know general truths about all life insurance policies, which in turn will help you make better decisions about the types of policies you buy and how you use your life insurance contract before you die. It can also help you make better decisions about how you save, spend, and invest your money.
The ultimate or primary purpose of life insurance is to create certainty out of the greatest uncertainty confronting an individual. Namely, the fact that almost everything in life (and even life itself) is a speculation and difficult (or impossible) to predict accurately When will you die? Will you die before you’ve accomplished everything you want to accomplish? Will your business succeed? Will you accumulate enough savings to retire comfortably? Will your investments pan out as you hope? Will you save enough money to send your child to college or get them into a trade school? Will you have enough money for a vacation next year? Will your computer last another year before dying? Will you get into a car accident (totaling your vehicle) before it’s paid off? Will you be able to afford your insurance deductibles? Will you become temporarily or permanently disabled and unable to work? Will you develop a degenerative disease and be unable to work? Will you. Life insurance levels these financial uncertainties by providing a guaranteed sum of money now and for your future.
Life insurance is for any productive individual who values their earning potential, income, and savings and believes it’s worth protecting against loss, whether from disability, illness, or death.
Basic Principles of Life Insurance
Principle of Indemnity
Applicable as well as not! Paradox right? Indemnity means to make good the losses or to pay back what is the loss amount. In case of a life insurance, you cant measure a persons life’s worth hence the payout is not on calculation basis of loss assessment as in case of general insurance but the full Sum Insured is payable at death. There could be multiple policies covering the same life and they all are liable to pay.
Principle of Contribution
This again will not apply for Life insurance as in case of trigger of policy, the insurer has to pay the full amount. Also, in the event of death, if insured had taken multiple policies, they all have to pay the nominees the full amount.
Principle of Subrogation
Essentially it means that loss to one can be claimed by insurance company and the company can in turn claim it from the loss maker. But again in Life insurance it does not hold true and damages and insurance cover is payable to insured/deceased.
Principle of Mitigation of loss
Just as in case of General insurance, here too the insured has to take utmost care of himself and should not indulge in activity that can harm his health or cause death.
The Latin term for nearest cause holds true for life insurance just as in the case of general insurance. The nearest cause of death is found and if it is not covered under the policy the total SI is not payable.