When facing risks covered by insurance that lead to financial losses, the insurance company is responsible for compensating the insured party. So, what is the principle of compensation in insurance? Is there anything special?
1. Principle of Compensation in Insurance:
The principle of indemnity is a fundamental principle of insurance law. According to this principle, an insurance policy should not provide benefits greater than the actual losses suffered by the insured party. The principle ensures that the insured party is entitled to compensation only for the losses they genuinely incur.
Contents of the Principle of Compensation:
The content of the principle of compensation includes the effective period, compensation in property insurance contracts, and liability insurance contracts. Specifically:
2.1 Effective Period:
Compensation arises when the following conditions are met:
– The insurance contract has been concluded, and the insured party has paid the insurance premium as per the contract.
– The insurance contract has been concluded, where the insurance company and the insured party agree that the insured party owes the insurance premium.
– There is evidence proving that the insurance contract has been concluded, and, alongside that, the insured party has paid the insurance premium.
Generally, when the insurance contract terminates, the responsibility for compensation also terminates. However, if the insured party fails to pay the insurance premium during the grace period based on the agreed terms in the contract, the insurance company still has to compensate for events occurring during the premium grace period. In this case, the insured party must pay the insurance premium until the end of the grace period as agreed in the insurance contract.
2.2 Principle of Compensation in Property Insurance:
The principle of compensation in property insurance typically involves three elements:
– Firstly, when damage occurs, compensation must be settled based on the current market value of the property, without exceeding the insurance amount.
– Secondly, the market value of the property at the time and place of the event leading to the loss, along with the actual extent of damage, is the basis for determining compensation in property insurance relationships.
– Thirdly, the purpose of these compensation principles is to provide a basis for determining compensation, avoiding insurance fraud.
Compensation methods may include repairing or replacing the damaged property with an equivalent one or providing a cash settlement. If the parties cannot agree on the compensation method, cash settlement will be the default.
2.3 Principle of Compensation in Liability Insurance Contracts:
For liability insurance contracts, the insurance company makes payments to the insured party through methods specified in the contract. This amount includes expenses (contractual fees, legal fees, and charges related to the liability for damages caused to third parties and their property).
Basis for liability compensation: Liability compensation from the insurance company only arises when a third party makes a claim against the insured party, seeking compensation for damages caused by that party, within the insurance period.
The primary form of compensation for liability insurance contracts is cash compensation.
3. Nature and Characteristics of the Principle of Compensation:
In essence, the principle of compensation in insurance stipulates that when a loss occurs, the insurance company is responsible for compensating the insured party to ensure they return to their original financial state before the unexpected event.
The fundamental characteristic of the principle of compensation in insurance is that the compensation amount must be equivalent to the actual loss, neither more nor less.
4. Significance of the Principle of Compensation:
The principle of compensation in insurance holds certain important implications. This principle is primarily applied in non-life insurance and is less common in life insurance.
In practice, the insurance amount or the amount of loss compensation may be lower than the market value of the property and the actual loss amount. The main purpose is to assign responsibility and encourage the insured party to safeguard and protect their property better.
Importantly, the principle aims to ensure that the insured party is compensated fairly, avoiding situations where others take advantage of insurance. Cases where losses occur but the insured party is not compensated, or the compensation is significantly less than the actual loss, hinder the insured party’s reasonable recovery, impacting their life and business activities, thereby defeating the purpose of insurance.
With this information, we hope to provide some insight into the principle of compensation in insurance and address your questions about this crucial aspect of the insurance process.
Cre: Fairy/bokastutor.com
