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Principles of Insurance

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Insurance has developed over the centuries and is a highly technical subject. The guiding light of Insurance is its six major principles. The same principles are also applied in motor insurance. In motor insurance usually, the insurer (who may be a composite insurer writing classes other than motor insurance or a specialist insurer writing only motor insurance) will normally take the risk from the insured and it writes the contract and promises to indemnify the insured or his representative in case of financial losses due to an accident or operation of a peril. You can select any insurance plan that is tempting to you like car insurance first month free no deposit, but the most important thing is to know which risks are covered and which are not covered by the policy you buy.

The insurance principles play an important role in the framing of the insurance contracts and claim settlement. It is also useful for the judiciary to arrive at the judgments relating to the insurance contracts. Justice cannot be done to any topic on insurance without the understanding of these principles. Understanding these principles of Insurance will help in understanding the entire subject of motor insurance in the right perspective, the principles are as follows. 

Understanding the Principles of Insurance – Proximate cause

A tricky principle is known as the principle of “Proximate Cause”. The purpose of this principle is to identify the peril (cause of loss), whether it is an insured peril (covered) or an excluded peril (not covered) and sometimes it may be unnamed peril. Even unnamed peril is also not covered under the insurance policy. 

Normally it is difficult to pinpoint the cause of loss responsible for the loss or damage if there are more than one cause or overlapping causes. The Proximate cause can be the first cause or last cause or maybe the dominant cause. It is also defined as the cause which leads to a chain of events leading to the loss without the intervention of another event. Suppose landslide risk is excluded from the policy, whereas the flooding risk is included in the policy. 

If the flooding is caused by a landslide, then if damage to the vehicle is caused by flooding. The risk is excluded even though the loss is caused by the flooding, which is a covered risk but the cause of the flooding is a landslide, and landslides are not covered under the policy.

Examples of the proximate cause 

Following the two most quoted examples will clarify the purpose and application of the principle of proximate cause. A man purchases a personal accident policy (which is an accidental death cover): 

  • In the first example, he is riding a horse in a cold region and he falls from the horse. His leg is severely fractured and being in a remote area, he is unable to find any help and due to severe cold, he catches pneumonia and dies. 
  • In the second example, the person gets help and he is shifted to a hospital and he catches pneumonia during his treatment at the hospital. After a few days he dies due to Pneumonia. 

Here the insurance company has to decide as to which claim is payable. In both cases there are two causes of death, accident, and pneumonia, one is accidental and the other one is due to a disease. The first case is treated as accidental and the claim is payable whereas the second case is treated as a death due to disease and the claim is not payable. However, if the coverage is for life insurance and for death “due to any cause”, then both the cases would have been covered by the Insurance Policy. 

Insured risks and excluded risks

Almost all the insurance policies may have risks that are insured and some may have risks that are excluded. To identify whether a claim is payable or not we need to know the cause of loss. Once we know the cause of loss then we will be in a position to say that a particular loss is payable or not. Proximate cause helps us in identifying the root cause of loss in case of more than one cause or overlapping causes of loss. The identification helps us to find out whether the cause of loss is coming under the insured peril, excluded peril, or unnamed peril.

For example – ANZ Engineering Corporation has taken a health insurance policy, which excludes any work-related accidents or diseases. One of their workers Mr. W suffers severe back pain early morning and gets admitted to the hospital and the doctors after thorough investigations conclude that Mr. W has an acute multiple discs prolapse. 

The insurance company tries to find the cause of his medical condition and they found that Mr. W is working as a loader and unloader at ANZ Engineering Corporation and they judge the proximate cause of the disc prolapse is related to his job function. The policy taken by the ANZ Engineering Corporation specifically excludes any loss arising out of work-related diseases or accidents. The insurance company invokes this condition and denies the claim. 

If the injury or disease is related to work then the claim will be admissible under the workmen compensation policy and the same should be lodged under WC policy.

The same goes for auto insurance and claims evaluation. Make sure to always read the fine print so there are no surprises at the worst of times. It also helps if you choose the right insurance company with a reputation that precedes it, such as Good to Go Auto Insurance.

 

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