PRINCIPLES OF

INSURANCE
INTRODUCTION

PRINCIPLES OF INSURANCE: INTRO:

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1 INSURABLE INTEREST

This principle is the basis of all principles of insurance. This

refers to the person/object/ financial or otherwise who is obtaining the
insurance. A person having insurable interest can only enter a valid
insurance contract. Insurable interest must exists during the time of
application and loss.

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2 PRINCIPLE OF GOOD FAITH

This principle requires both parties to honestly disclose all information,

accurately and fully. Both parties are required to observe good faith
and dissolve all necessary materials and information which may affect
the contract.

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3 PRINCIPLE OF INDEMNITY

This principle states that the insured must be compensated for

the amount of loss incurred. Only to the extent that the insured doesn’t
make a profit out of this. Insured must not derive any additional benefit
out of this contract. All life insurance contracts except life insurance are
contracts of indemnity.

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4 PRINCIPLE OF SUBROGATION

This principle states that the insurer steps into the place of the insured
after the claim has been recovered/ after compensating for the loss. The
insurer has indemnified the insured of the loss incurred.

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5 PRINCIPLE OF CONTRIBUTION

This principle is applied when the insured object is insured by two or

more insurer. The loss occurring on the object must be insured on pro-
rata or any such contract signed. All policies should be in force during
the occurance of the loss.

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5 PRINCIPLE OF PROXIMATE CAUSE

This term proximate refers to closest or nearest. In the case of a

loss occurring due to 2 or more reasons, then the cause closest or the
most direct cause will be considered as the reason of the loss incurred.
The remote cause is not considered in this case. The time of occurrence is
very important in this principle.

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5 PRINCIPLE OF MITIGATION OF LOSS

Mitigation of loss refers to the reduction or decrease in the severity of

the loss. This is important to reduce any unnecessary loss faced by the
company. In case of loss, the insured must take all necessary steps to
reduce loss like any prudent person would.