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Objectives An insurance company chooses reinsurance as a part of its responsibility to cover different risks for the benefit of its policy holders and investors. The important objectives of reinsurance are: 1) To reduce net liability and increase surplus for the insurance company 2) To protect against catastrophies 3) To stabilise the company's overall operating results by reducing the fluctuations in loss experience. 4)To limit liability on specific risks 

Whenever the same subject matter is insured with two or more insurers to cover the same risk, it is called double insurance. The principle of contribution applies to all double insurance contracts. Accordingly, when there is a double insurance, the insured is entitled to recover only the actual amount of loss. He cannot claim anything more than the actual amount of loss, although he has taken two or more policies. He can recover the entire loss either from the insurer or from all insurers. If the insured chooses to recover the entire loss from one insurer alone, then the insurer, who has paid the actual loss has a right to recover proportionate amounts from the other insurers. In other words, each insurer is bound to contribute to the loss of the insured in proportion to the policy amount. The right of the insurer to contribution from the part of the co-insurers may be explained clearly by means of an example. Suppose, A insures his house against fire with Y and Z for Rs. 15,000/-e...

The principle of subrogation is an extension of the principle of indemnity. This principle applies only to contracts of indemnity. So it does not apply to life insurance and personal accident insurance contracts as they are not contracts of indemnity. According to this principle, when the insurer pays compensation to the insured for loss, the insurer will get all the rights of the insured in respect of the damaged property and against a third party who is responsible for the loss. Thus, if A suffers a loss of property due to B's negligence, A has a right to recover the loss from B. If the property so lost is insured, then the insurer will have to compensate A. However, the insurer will, get A's right of recovery of loss from B. If A is allowed to recover the loss from B also, he will be making a profit which is against the principle of indemnity

All insurance contracts, except life and personal accident insurance, are based on the principle of indemnity It means that the insured will be paid only the actual amount bound of loss or the amount of the policy whichever is less. That is he will not be allowed to make a profit out of any damage to his property by taking an insurance policy. For eg. If a person has insured his goods for Rs. 20,000 against fire and if goods worth Rs. 15,000 are destroyed by fire, the insurance company need pay only Rs. 15,000/- ie. The actual value of the goods lost. Moreover, if the actual loss exceeds Rs. 20,000, then subject the insured will get only Rs. 20,000/. This is because if the insured has a chance to get an amount higher than the amount of loss there will be a temptation for him to destroy his property intentionally and thus secure a profit out of insurance. However, in the case of life and accident insurances this principle of indemnity does not apply. The monetary loss caused by de...

In simple words, insurable interest means monetary Insurable Interest interest. No person can enter into a valid contract of insurance unless he has insurable interest in the subject matter of insurance. A person is said to have insurable interest in the subject matter, if he suffers financially, by its loss or destruction. Thus a person has insurable interest in his own life, in the life of his spouse or child or debtor. Similarly the owner of a property has an insurable interest in it. It is also important, to know the time at which the insurable interest must exist to execute a valid contract of insurance. It depends on the branch of insurance. In the case of life insurance, the insurable interest must exist at the time when the policy is taken. It may not be in existence at the time of the death of the person whose life is insured. For eg. A creditor can insure the life of his debtor to the extent of the debt. Even if the debtor dies after paying off the debt, the creditor ca...

Every contract of insurance is based on the principle of utmost good faith. It implies that the insurer and the insured must act in good faith and disclose all material facts concerning the subject matter of insurance. This rule applies particularly to the insured because he is naturally in possession of all material facts relating to the subject matter of insurance. The material facts must be disclosed at the time of giving a proposal for insurance by the insured. If he does not disclose all material facts at the time of the contract, the insurer can avoid the contract, when he comes to know of such concealment. However, he is not bound to disclose those facts which are known to him only after the contract is entered into.