Which statement is true about an insurance policy?

An insurance policy indeed relies on the utmost good faith of both the insured and the insurer, which is known as "uberrima fides." This principle is fundamental to insurance contracts, as it requires both parties to act honestly and disclose all relevant information. The insurer must provide clear terms and coverage, while the insured must fully disclose their risk factors and any material information that could affect the underwriting decision. This mutual trust is crucial for the insurance contract to function properly and to mitigate risks associated with claims and policy management.

Understanding this aspect emphasizes the importance of transparency and honesty in the relationship between insurance providers and policyholders. It ensures that both parties have a fair understanding of their rights and obligations, promoting a more effective and trustworthy insurance process.