What does 'Utmost Good Faith' in insurance entail?

'Utmost Good Faith' is a fundamental principle in insurance that requires both parties involved in the insurance contract to act honestly and disclose all relevant information. This principle ensures that the insurer can assess the risk accurately and provide coverage accordingly, while the insured is treated fairly and understands what is being offered.

Answering questions truthfully on the proposal form is crucial because it establishes a transparent relationship between the insured and the insurer. If the insured provides accurate and complete information, it allows the insurer to evaluate the risk level associated with the policy, leading to appropriate coverage terms. Failing to do so can result in the policy being voided or claims being denied if the insurer discovers any discrepancies later.

Overall, this principle promotes trust and integrity in the insurance process, ensuring that both parties fulfill their obligations and that the system functions effectively.