General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
The principle of utmost good faith in insurance requires:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Insurance is a contract of utmost good faith, meaning both parties must deal honestly and openly with each other. The applicant must disclose all material facts that could affect the insurer's decision to accept the risk or set the premium, and the insurer must act fairly in return. Because the insurer relies on the applicant's statements to price the risk, concealment or misrepresentation of material facts can void the policy. This duty is one of the highest standards of honesty found in commercial law.
Why the other options are wrong
- A) Utmost good faith is a two-way duty. It binds the applicant just as fully as it binds the insurer, so it cannot be limited to only one party. The duty binds both sides; the applicant's obligation to disclose material facts is just as important as the insurer's fairness.
- C) The duty goes beyond answering questions. Material facts known to the applicant should be revealed even if they are not directly asked, because they affect the risk. The applicant must volunteer material facts they know, because the insurer can only price a risk it fully understands.
- D) Insurable interest is a separate legal requirement for life insurance at application. It is not the meaning of good faith, which concerns honesty and disclosure. Insurable interest is a separate legal element required for life policies, not the meaning of the good faith principle.
Memory hook
Utmost good faith = full confession both ways. Insurance trust is a two-way street.