Back to: Insurance
Hello again, my intelligent friend! Welcome back to your insurance journey with Afrilearn. I love your consistency, and I want you to know—you’re doing something powerful for your future. Today’s class is one of the most important ones, so get comfortable, open your mind, and let’s go step by step.
Basic Principles of Insurance
Now that you understand what insurance is and why it’s important, let’s talk about what makes it actually work. You see, insurance isn’t just about paying and receiving money. There are certain important rules and values behind every insurance policy, just like a strong building needs a strong foundation.
In today’s lesson, we’ll unpack the three basic principles that guide all insurance agreements: Insurable Interest, Utmost Good Faith, and Indemnity. Don’t let the fancy names scare you—they’re easy to understand and even easier to remember when we break them down.
1. Insurable Interest
This simply means that you must suffer a financial loss if the item you are insuring is damaged or lost. You can only insure something that belongs to you or something that affects you financially.
Let’s say Daniel wants to insure his cousin’s car. He can’t—because he doesn’t own it, and he won’t lose money if anything happens to it. But if it’s his own car, or his parents’ house (and he’s financially responsible), he has insurable interest.
Why it matters: It prevents people from taking insurance on things just to make money from the loss.
2. Utmost Good Faith (Uberrimae Fidei)
This principle means both you and the insurance company must be 100% honest with each other. You must tell the full truth when applying for insurance, and the insurance company must also be honest in explaining the terms.
Example: If Jumoke has asthma but doesn’t mention it when applying for health insurance, that’s a problem. If the insurer finds out later, they might cancel the policy or refuse to pay claims.
Why it matters: Insurance only works well when there’s trust between both parties.
3. Indemnity
This means you should not make profit from insurance. Insurance is only meant to return you to the financial position you were in before the loss. Not better, not worse.
Imagine if Kingsley’s phone worth ₦200,000 was stolen. His insurer won’t give him ₦500,000. They’ll only pay him the value of the phone—nothing more.
Why it matters: It ensures fairness and prevents people from using insurance to make quick money.
Clear and Relatable Examples
Think about Ifeoma, who just insured her salon. She wrote on her form that she owns all the equipment—but she didn’t say that some dryers belonged to her friend. When there was a fire, her insurer only compensated her for what she truly owned. That’s utmost good faith in action.
Then there’s Yusuf, who took fire insurance for his electronics shop. After a minor fire destroyed some goods, the insurance helped him restock—but they didn’t pay him double. That’s indemnity.
And for insurable interest—let’s say Bisi wants to insure her boyfriend’s laptop. The insurance company won’t allow it. She has no financial connection to the laptop.
Summary
The principles of insurable interest, utmost good faith, and indemnity are the backbone of every insurance policy. They keep things fair, trustworthy, and financially sound. Understanding these helps you become a smart policyholder who knows their rights and responsibilities.
Evaluation
Answer the following to check your understanding:
What does insurable interest mean, and why is it important?
Give one example of a situation where utmost good faith applies.
Explain indemnity in your own words. Why is it not okay to profit from insurance?
You’re doing incredibly well! These principles are the kind of things professionals remember for life—and you’re already mastering them. Keep believing in yourself. Afrilearn is proud of your growth, and the best is yet to come!