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

Which of the following best describes the principle of 'utmost good faith' (uberrimae fidei) in an insurance contract?

Utmost good faith means both parties must honestly disclose all material facts, and the proposer must not hide anything that would influence the insurer's decision to accept the risk or set the premium. Non-disclosure can make the policy voidable.

  1. AOnly the insurer must disclose all facts
  2. BBoth parties must disclose all material facts, and the proposer must not conceal facts that affect the insurer's decisionCorrect
  3. CThe insurer must investigate every fact independently
  4. DDisclosure is needed only when the insurer asks a question

Explanation

Insurance contracts require full disclosure of material facts by the proposer, and the insurer must also act honestly and not mislead. It is not limited to answers to questions, since material facts must be volunteered. The insurer is not obliged to investigate everything.

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