Explain briefly the principles of insurance with suitable examples.
The principles of insurance are rules of action or conduct adopted by stakeholders in the insurance business. The main principles are:
1. Utmost Good Faith: A contract of insurance is a contract of uberrimae fidei, meaning a contract based on utmost good faith. Both the insurer and the insured should display good faith towards each other. It is the duty of the insured to voluntarily make full, accurate disclosure of all facts material to the contract. For example, a person buying life insurance must disclose all health-related information truthfully.
2. Mitigation: This principle states that it is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. For example, if goods kept in a storehouse catch fire, the owner should try to recover the goods and save them from fire to minimise the loss. The insured must behave with great prudence and not be careless just because there is an insurance cover. If reasonable care is not taken like any prudent person, the claim from the insurance company may be lost.
Explanation
The question asks for principles of insurance with examples. From the provided context, two principles are explicitly explained: (i) Utmost Good Faith and (vii) Mitigation. The context mentions that principles of insurance are 'rules of action or conduct adopted by the stakeholders involved in the insurance business.' For a 4-mark answer, explaining these two principles with their given examples is appropriate as it covers the key content available in the textbook context.