7 Most Important Principles of Insurance


 Insurance is a means of protection from financial loss.There are different types of insurance like

 Auto ,Gap ,Health insurance,Life insurance,Property insurance,Payment protection,etc..


The important principle of insurance are as follows:

The main motive of insurance is cooperation and it is “The equitable transfer of risk of loss from one entity to another, in exchange for a premium”.

1. Nature of contract:

Nature of contract is a fundamental principle of contract in which one party makes a proposal of contract and the opposite party accepts.

This Contract should be simple to be a valid contract. The person entering into a contract should enter with his free consent and not forcefully.

2. Principal of utmost good faith:

Both the parties should have faith over each other. As a client it is the duty of the insured to disclose all the facts to the insurance company. Any fraud or misrepresentation or false information  can result into cancellation of the contract.

3. Principle of Insurable interest:

In this,the insured must have interest in the subject matter of the insurance. Absence of interest makes the contract null. If there is no insurable interest at the time of purchase, a company will not issue a policy.

For instance, a creditor has an insurable interest in the life of a debtor, that individual is considered to have an unlimited interest in the life of their spouse etc.

4. Principle of indemnity:

Indemnity means security/compensation against loss/damage. In this  principle of insurance an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss.

The purpose principle is to set back the insured to the same financial position that existed before the loss.

5. Principal of subrogation:

The principle of subrogation enables the insured to claim the amount for the loss from the third party responsible . It allows the insurer to pursue legal methods to recover the amount of loss.

For example, if you get injured in a road accident, due to reckless driving, the insurance company will compensate your loss and will sue the third party to recover the money paid.

6. Double insurance:

It denotes insurance of same matter with two different companies/ same company under two different policies. It is possible in case of indemnity contract like fire, marine and property.

This insurance is adopted where the financial position of the insurer is doubtful. The insured cannot recover more than the actual loss and cannot claim the whole amount from both the insurers.

7. Principle of proximate cause:

Proximate cause in insurance means the ‘nearest cause’ or ‘direct cause’. This principle is applicable when the loss is the result of two or more cause that is when there are series of causes of damage or loss.