A person gets his stock worth Rs 50000 insured for for Rs 70000.A fire occurs and the whole stock gets damaged. The insurance company will pay him only Rs 50000, the actual value of his stock and not Rs 70000. Which principle of insurance is applied in this case? Explain?
Shouldn't it be contribution? If not why?
Dear Student
The principle of Insurance in this situation would be Indemnity. It is so because this principle states that the Insurer will bring the Insured to the same position as he/she was before the occurrence of the loss. Thus, as before the fire, the person had stock of Rs. 50,000 with him, then the insurance company has to bring him to his own previous position, thus, it will only pay Rs. 50,000 to him.
Hope this information clarifies your doubts. Keep posting :-)
Regards
The principle of Insurance in this situation would be Indemnity. It is so because this principle states that the Insurer will bring the Insured to the same position as he/she was before the occurrence of the loss. Thus, as before the fire, the person had stock of Rs. 50,000 with him, then the insurance company has to bring him to his own previous position, thus, it will only pay Rs. 50,000 to him.
Hope this information clarifies your doubts. Keep posting :-)
Regards