Question

What is the principle of Utmost Good Faith?

Answer 1

Principle of utmost good faith:

• The main objective of selling insurance is not profit but to fulfill specific social objectives of providing financial compensation in cases of pre-defined risks.
• This principle says that both the parties i.e. the insurer and insuree should have mutual and complete faith on each other. This means that the insuree will claim for financial losses only for genuine and pre-defined losses as mentioned in the insurance policy and the insuree will pay the full compensation in case of genuine claims raised by the insuree.
• While entering into an insurance contract both the parties i.e. the insurer and insuree should provide all the necessary information even if it is not asked by either party but if it is felt that the information may have an impact on the contract during claims.
• Any information that one hides and if it affects the claims made for financial loss can be termed as fraud and a breach of the principle of utmost good faith.
• In case the insuree provides wrong information or does not provide some important information during signing the contract and if he faces a financial loss, the insurance company i.e. the insurer will reject the claim and will not refund the paid premium. The insuree then loses all the rights of compensation for the risk.