Insurance has a number of principles. Some of the key ones are:
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- Utmost good faith. You must be really truthful when answering questions on insurance proposal forms.
- Non-disclosure. If you deliberately hold back information such as not telling the insurer that you have had cancer when you apply for life assurance, the insurer may not pay.
- Insurable interest. You can only insure something if you stand to lose financially from any loss or damage. So, you can’t insure someone else’s car. With life assurance, you can insure yourself, your partner, your children (to a limited extent) or your business partner or someone you had lent money to (but only up to what you might lose financially). You cannot insure your parents, a friend or a public figure.
- "Average". If your house costs £100,000 to rebuild and you only insure for half that, on the basis that it is very unlikely to completely burn down, the insurer will apply "average". This means that if you only insure half the value then what you are really doing is insuring half of everything yourself. So, if a small fire causes £15,000 of damage your insurer would only pay you half that.
- Policy conditions. This is where you find the "small print". Many are now written in Plain English, but insurers still use more than their fair share of gobbledegook. If you don’t understand something always ask what it means, and get it in writing.
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Copyright The Financial Times Limited 2008
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