In the world of insurance, there are six basic principles or forms of insurance coverage that must be fulfilled, including Utmost Good Faith, Insurable Interest, Indemnity, Proximate cause (proximal cause), Subrogation (transfer of rights or guardianship), and Contribution.
The following is an explanation of the basic principles for each:
#1. Utmost Good Faith
You must disclose to the insurance company all complete and correct information. That means complete honesty is very important.
#2. Insurable Interest
You must have rights to the object you insure. The point is that you have to have an interest in the goods you insure.
Indemnity is the value of the loss to be paid by the insurance company, where the value must not exceed the value of the loss incurred.
#4. Proximate cause (proximal cause)
Proximal Causation is a claim if the insured object experiences an accident. The insurance company will find out the main cause of the accident. Then from there, the insurance company will decide to determine the number of claims received by the policyholder.
#5. Subrogation (Assignment of Rights or Trust)
The transfer of rights or guardianship is the transfer of rights from the insured to the insurer if the insurer has paid compensation for the insured.
Car X, Year of make 2000, is insured for Rp. 200 million. The market price of the car at the time of the incident was Rp. 200 million. Then there is a loss of Rp. 50 million due to being hit by a third party, compensation can occur as follows:
- The insured (we as insurance policyholders) will receive compensation from the insurer (Insurance Company) of IDR 50 million, in this case, the insurance company has the right to ask for compensation from a third party.
- The Insured receives compensation from a third party for IDR 50 million and the insurance company does not provide compensation back.
- The Insured receives compensation from a third party of IDR 20 million, the insurance company will provide compensation the remaining Rp. 30 million to the Insured.
Contribution is when the object of your coverage is insured to several Insurance Company. So there will be a contribution in protecting each of the insurance companies.
You insure one vehicle and its contents with a total value of IDR 200 million to 3 insurance companies, with insurance value.
- Company A IDR 200 million
- Company B Rp 100 million
- Company C Rp 100 million
Then one day, an accident occurs and damages or destroys your car. The total amount of compensation that you will get according to this insurance principle is:
- Company A : IDR 200 million / IDR 400 million x IDR 200 million = IDR 100 million
- Company B : IDR 100 million / IDR 400 million × IDR 200 million = IDR 50 million
- Company C: IDR 100 million / IDR 400 million x IDR 200 million = IDR 50 million