Principles of insurance

Insurance/ takaful principles

 Your insurance and takaful products are subject to four main principles which are observed universally, that is, insurable interest/ permissible takaful interest, utmost good faith, indemnity and contribution. To get an insurance protection, you need to have an insurable interest in the item or life to be insured. Insurable interest is normally present by way of relationship or ownership. For example, a person will have insurable interest in his own or child’s life, house or motor vehicle. On the same basis, in takaful, you need to have permissible takaful interest before you can join a takaful scheme. An insurance/ takaful plan without insurable interest/ permissible takaful interest is like a gambling contract where the purpose of having insurance/ takaful is to profit from it. Utmost good faith means you need to state all the material facts when you are buying a policy or joining a takaful scheme. The purpose is to allow your insurance company/ takaful operator to decide whether it should provide the insurance or the takaful cover to you, and the amount of premium or takaful contribution that it should collect from you. 7 If you do not observe this requirement, your insurance policy/ takaful certificate can become invalid and your insurance company/ takaful operator can refuse to pay a claim made by you. Indemnity and contribution only apply to insurance/ takaful taken on your belongings. When you incur a loss, the rule of indemnity will only allow you to get an amount that will return you to the position you were in before the loss. Under the contribution rule, all insurance companies/ takaful operators providing cover to a property will share in the damages of the said property. In this way, a person cannot “profit” by having more than one policy or takaful plan on the same item.