Legal doctrines in insurance

Moral hazard: behaviour of the policyholder, who becomes less willing to spend money to prevent or reduce losses, after obtaining insurance.

Adverse selection: when policyholders are better informed about expected claims and higher risk policyholders are more likely to buy insurance, compared to lower risk policyholders.

Deductible: the amount that the insured is required to pay for the initial portion of each loss, before a claim can be made on the remaining loss.

Policy limits: the maximum amount payable by the insurance policy on the loss. The excess cannot be claimed.

Exclusions: events that are not covered under the policy, such as war or natural disaster under a property insurance policy.

Indemnity contract: pays up to the actual amount of the loss, even though the sum insured may be higher. Applies to motor and medical expense insurance, but not to life and personal accident insurance.

Insurance-t0-value: if a property has been insured for less than its actual value, the policyholder is allowed only to claim for only a proportion of each loss, and has to bear the proportion that is under-insured.

Contract of adhesion: if the standard policy wording is vague, the court will intepret the wording in favour of the policyholder, as the insurance company is expected to be more familiar with the contract and is expected to write the terms more clearly.

Reasonable expectation: the contract will be interpreted according to the expctation of a reasonable person who is not trained in law.