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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

Ms. Kavya, aged 35, buys a health policy and does not mention that she has been treated for diabetes for years. The insurer discovers this at claim time. Which principle has she primarily breached?

She has breached the principle of utmost good faith. Insurance requires full and honest disclosure of material facts, and hiding a known illness such as diabetes is non-disclosure, entitling the insurer to repudiate the claim.

  1. APrinciple of contribution
  2. BPrinciple of utmost good faithCorrect
  3. CPrinciple of proximate cause
  4. DPrinciple of subrogation

Explanation

Insurance contracts require the proposer to disclose all material facts truthfully. Concealing a known chronic illness is a breach of utmost good faith (uberrimae fidei), which allows the insurer to repudiate the claim. Contribution applies to multiple policies, and proximate cause concerns the cause of loss.

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