What are the principles of Insurance?
Principle of Utmost Good Faith
An insurance contract is a contract of ‘uberrimae fidei’. The Principle of Utmost Good Faith states that both the parties of an insurance contract should have good faith towards each other. Also, each party should communicate the terms and conditions in a non-ambiguous manner to the other.
Principle of Insurable Interest
Having some economic or pecuniary interest in the subject matter of the insurance policy or contract is known as Insurable Interest. The Principle of Insurable Interest states that the insured must have the insurable interest in the subject matter of the insurance.
Principle of Mitigation
According to the Principle of Mitigation, the insured is obligated to take reasonable steps to minimize the damage to the insured subject. The aim behind this principle is to ensure that the insured does not become careless towards the insured subject after taking the policy for covering the risks.
Principle of Indemnity
Indemnity means &lsapos;Security against Loss&rsapos;. The Principle of Indemnity aims at putting the insured (in the event of loss) in the exact same position the insured has immediately before the occurrence of that event.
Principle of Contribution
According to the Principle of Contribution, an insurer who has already paid the amount of claim to the insured has a complete right to recover the proportionate contribution from the other insurer. In other words, the principle states that an insured can take more than one policy for a subject or property.
Principle of Proximate Cause
Any loss can be caused because of two reasons: Insured Perils and Uninsured Perils. The Principle of Proximate Cause states that the insurer is only liable for the losses when they are proximately caused by the perils stated in the insurance policy.