The main principles of insurance are as follows:
Principle of utmost good faith
Insurance is a contract between two parties in which the insurer agrees on the payment of periodic premium to pay claims on the happening of a specified event o the insured after due verification. The principle demands that there should be no concealment of facts. The person who wants insurance of his goods, property, life, etc. must be absolutely open and state facts with utmost good faith to insurance company.
The principle of insurable interest
According to this fundamental principle of insurance, a person who has an insurable interest in something is entitled to insure it against any risk. In case the insured event occurs, the insurer must suffer a financial loss. He would then collect the financial loss on an insurance claim.
The indemnity principle
All insurance contacts with the exception of life insurance and personal accident insurance are contracts of indemnity. The indemnity principle states that no insured is to be allowed to make profit from a loss are compensated from the exact amount of the loss. If any policy holder makes a profit from the occurrence of any contingency insured against it will be against the public policy and thereby void.
There are 5 types of principle of insurance
1. Principle of utmost good faith
2. Principle of indemnity
3. Principle of warranty
4. Principle of proximate cause
5. Principle of subrogation
This principle applies to all contract of insurance. We may only insure those things in which we have insurable interest. For example I cannot insure my neighbours house and property since I have no insurable interest in them. I can insure my own property, house etc. A creditor may insure the life of his debtor up to the value of the amount of owed.
Utmost Good Faith:
This principle applies to all insurance contracts. The insured must disclose fully all-material facts known in answering all question in the proposal form and in all dealing with the insurance company.
This rule applies to all insurance contracts except life assurance and personal accident insurance. Indemnity means to restore the person to the position that he was in immediately before the event concerned took place.
The First Corollary Indemnity Contribution:
This applies to all contracts except insurance of life risks. Contribution applies where a person has insured identical risks on the same property with a number of companies, or when policies overlapped. The amount of the loss is shared proportionately among the insurance companies.
The Second Corollary of Indemnity Subrogation:
This means that when the insurance company has the paid out the claims, it surrogates or steps into the place of the insured and inherits all his rights and remedies agents third parties.