Question

Define insurance and discuss the principle of indemnity. In an auto insurance policy, explain the meaning of the numbers 100/300/75. Explain what a living will is and how it differs from a health care proxy.

Answer 1

1) What is Insurance?

Insurance is a protection through monetary compensation against a possible loss. The loss can be of life, property, goods, some kind of a damage, illness, etc.

In return of the protection given, a certain amount is charged and it is called Insurance Premium.

Example - A motor insurance is an insurance to compensate against any damage or theft of the motor insured. The insurer i.e. the person who promises to pay the compensation charges some money as a motor insurance premium, from the insured, i.e. the person who owns the motor and buys an insurance to protect himself against damages and theft.

2) The Principle of Indemnity

The principle of indemnity states that the insured be put back in the same position as he/she was just before the loss. Another, valuable point to understand under this principle is that the insured shall not gain from the insurance compensation received. The compensation shall make good the loss and not be a gain to the insured.

Example - Your motor vehicle met and accident and the door was damaged and needs to be repaired. Your motor vehicle is say 3 years old. Now the value of the door after 3 years is subject to depreciation and thus the insurance company shall compensate you for the new door but adjusted for the depreciation.

Here, it will make good and your loss and not let you stand a gain. It will bring you to the position just before the accident and not the position when you bought the motor vehicle.

3) In an auto insurance policy, explain the meaning of the numbers 100/300/75

The first number represent the "physical injury per person" that the insurance company will pay in case of an accident that was your fault. In this case 100. It signifies that maximum $100k will be paid by the insurance for damages to a person in an accident that was your fault.

The second number represents the "total physical injury per accident" that the insurance company will pay in case of an accident that was your fault. In this case 300. It signifies that maximum $300k will be paid cumulatively for all people injured in an accident which was your fault. Subject to maximum $100k per person.

The third number represents "property damage" that the insurance company will pay in case of an accident that was your fault. In this case 75. It signifies that maximum $75k will be paid by the insurance for damages to a property, basically other driver's car(s), or houses or barricades as the case may be, in an accident that was your fault.

4) What a Living Will?

A Living Will also called an Advanced Directive, is a legal document specifying the type of medical treatment an individual wishes to get or to not get in the even he/she is unable to communicate the same later on.

5) How is Living Will different from Health Care Proxy?

In a health care proxy, the patient appoints a legal agent to take healthcare decisions on his/her behalf, when the patient is incapable of taking such decisions on his/her own. The decisions that can be taken may or may not be specified in the proxy.

The main difference between Living Will and Health Care Proxy is that in living will the patient takes healthcare decisions for themselves before reaching incapability while in health care proxy they appoint an agent to take such decisions on their behalf.