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Principles of Insurance by Dr. Gaurav Garg

1. Principle of Insurable Interest

● Without the principle of insurable interest, the types of insurance as we know them would not exist. This
principle states the policyholder must suffer some type of financial loss if anything should happen to the
object they’re looking to insure.
● If damage or loss of the object in question would not affect you financially, chances are, you can’t insure
it. The entire purpose of the insurance industry is to compensate you for a financial loss.

2. Principle of Utmost Good Faith:

● The duty of Utmost Good Faith (uberrimae fides) is central to the buying and selling of Insurance.
● Hence the insurance policies are described as contracts of Uberrimae Fidei.
● In simple terms that the insurer and the person who is applying for insurance have a duty to deal honestly
and openly with each other in the negotiations that lead up to the formation of insurance contract.
● This duty may also continue whilst the contract is in force.

3. Principle of Indemnity:
● The rules concerning the amount to which the insured is entitled under their policy when loss occurs; the
central concepts here is the principles of indemnity which in simple terms, requires that the insured
should be fully compensated for their loss, but not over-compensated.
● The object of Insurance is to place the insured in the same financial position as he was just before the
loss.
● This principle prevents the insured from making a profit out of a loss and ensures public interest at large.

4. Principle of Contribution:
● An insured whose loss is covered by two or more policies can’t recover more than an indemnity.
● However, at common law he can claim against the insurers in any order and for such proposition of the
loss as he thinks fit.
● In particular, he may choose to claim from one insurer only and recovers in full from that insurer.
● Having satisfied the loss, the insurer who pays may then, and only then, claim a contribution from the
other insurer(s).
● Insurers have always regarded this as an unsatisfactory state of affairs, because the insurer that is called
upon to pay has the full burden of handling claim and paying the loss, plus thereafter claiming from
another insurer, it may be some time cost and, perhaps, even lead to a dispute with the other office.
○ For this reason, insurers include contribution condition in all their policies. A contribution
condition is a clause that sets out how the loss is to be met if the insured has another policy
which covers it.

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 5. Principle of Subrogation
● Of all the principles of insurance, the principle of subrogation is especially important for auto,
motorcycle, and boating accidents.
● This principle states that if your vehicle has been destroyed or totalled, your insurance company will
receive ownership over the insured object once they pay your compensation.
● This is referred to as the insurance company’s subrogation rights. After the insurance company pays your
compensation for the insured item, they typically sell whatever is salvageable to recover their losses. This
means you can’t attempt to profit off the totaled vehicle after you’ve been paid.

6. Principle of Loss Minimization

● When you think, “What is the most important insurance principle?” you might not consider the principle
of loss minimization. However, this insurance principle is key to ensuring the utmost good faith in many
insurance contracts. The principle of loss minimization states the insured person should take all necessary
steps to control and reduce their losses whenever possible, thus not furthering the extent of damages.
● Consider if there was a small fire under your car’s hood. After ensuring your safety, your first thought
cannot be, “Well, I have insurance, so I can let it burn and receive a claim for the damage.” Instead, you
should attempt to control the fire by calling the fire department or taking fire safety precautions. If you do
not attempt to minimize the damage under the belief that you will be compensated regardless, your
insurance company can prove you breached the principle of loss minimization and broke your bond of
good faith. In fact, the insurance company could deny your claim altogether for your lack of risk
management.

7. The Principle of Causa Proxima or Proximate cause

● Proximate cause is referred to as the cause that is active and is efficient in causing or setting in chain a
motion of events that ultimately brings forward a result. The proximate cause needs to be the first cause
or the last, but it is defined as the cause that is most active in bringing forth a result.
● When the liability of the insurer is determined, the proximate cause is considered first. Therefore, if the
proximate cause of a loss is a known insured risk, for which the insurer has to pay the insured.
● It means that if the proximate cause of the loss is insured then the insurer is liable to pay the
compensation to the insured.

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To Download Current Affairs PDFs join this Telegram Group of Dr. Gaurav Garg - https://t.me/StudyIQPremiumUsers
To Buy Gaurav Sir's Current Affairs, Static GK & Banking Awareness (Static) Courses, click on the
below links (गौरव सर के करट अफेयस, े िटक जीके और बिकंग अवेयरनेस ( े िटक) कोसज खरीदने के िलए, नीचे
िदए गए िलंक पर क कर) -
1. Gaurav Sir's Current Affairs
2. Gaurav Sir's Static GK
3. Gaurav Sir’s Banking Awareness (Static)

For any Assistance Please Feel Free to Contact at - 95544 43351

To know more, download Study IQ APP

https://play.google.com/store/apps/details?id=com.studyiq.android

To Download Current Affairs PDFs join this Telegram Group of Dr. Gaurav Garg - https://t.me/StudyIQPremiumUsers