Question

Rahul had taken insurance of ` 3 lac for his car (worth ` 2 lac)

from an insurance company. After 2 month, his car caught fire

and got damaged severely. His car was taken by insurance

company and insurance amount was paid to the Rahul.

(i) How much amount was given by the insurance company

to Rahul?

(ii) According to which principle of insurance did the insurance

company take his damaged car?​

Answer 1

i) Principle of Indemnity

ii)Principle of Subrogation

Explanation:

(i) The amount of 2 lakh is to be given by the insurance company to Rahul in accordance with the Principle of Indemnity. According to this Principle, a loss on payment will replace what is lost or diminished, putting the insured goods back to where it is financially prone to the loss without rewarding or penalizing the insured for his/her loss.

(ii) The insurance company took Rahul's damaged car in accordance with the Principle of Subrogation. According to this principle, when the insured is compensated for the losses that occurred because of damage to his insured property, then the ownership right of that property goes to the insurer.