Insurance is not just about paying for protection — it’s built on a few important rules that make it work for both the person getting insured and the company offering it. These are called the 7 principles of insurance. Let’s break them down in simple terms:
1. Utmost Good Faith
This means both you and the insurance company should be honest with each other. You must give correct information when buying insurance, and the company must explain the terms clearly.
2. Insurable Interest
You can only insure something if it really matters to you financially. For example, you can insure your house or your car — because if something happens to them, you’ll lose money. But you can’t insure someone else’s property if it doesn’t affect you.
3. Indemnity
This is a big word, but it simply means you shouldn’t make a profit from a loss. Insurance is there to help you get back to where you were before the loss — not to make extra money.
4. Contribution
If you have two insurance policies for the same thing, and a loss happens, both companies will share the cost. You won’t get double the amount — just the actual value of the loss, split between the companies.
5. Subrogation
If someone else causes damage and your insurance company pays you, they now have the right to get that money back from the person who caused it. This helps keep the system fair.
6. Proximate Cause
This means the actual reason the loss happened must match what the insurance covers. For example, if your fire insurance covers fire damage, the loss must be caused directly by fire.
7. Loss Minimization
If something bad happens, you should try to reduce the damage as much as possible. Even after the event, you’re expected to act responsibly and protect what you can.
These 7 principles keep the world of insurance running smoothly. They help build trust and fairness for everyone involved.