Page 32 - M1_Insurance Introduction Notes

 Contract of utmost good faith-

It should be noted that when an insurance contract

is entered into, the insured person knows

everything about the risk insured but the insurer

knows nothing. The insurer can assess the

probability of loss (depending on which he decides

to accept the risk and charge the premium) only

based on what the insured tells him about the risk.

Similarly, the insured would not understand what

the benefits are in relation to the cost paid

(premium paid) unless the same are made known

to him to enable him to make an informed choice.

Insurance contracts thus stand on a different

footing as compared to other kinds of commercial

contracts. Disclosure of all material information

has to be made by both the parties to the

contract.

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