What are the 8 Principles of Insurance?

What are the 8 Principles of Insurance? is discussed in this article with the principles listed and carefully explained.

Principle of subrogation

What are the 8 Principles of Insurance?
What are the 8 Principles of Insurance? – Photo Source: https://financeplusinsurance.com

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Principles of Insurance:

1. Nature of Contract

This principle states that when one party makes a proposal of an agreement or a contract and the other party does not reject the offer but receives it, then such an offer can be termed to be legit and considered an insurance contract.

Thus an insurance contract approaches its being or is officially recognized among the insurer which is otherwise called the insurance company and the insured or the body corporate. The existence of that contract is recognized.

2. Utmost Good Faith

The client or the insured has a tax or a responsibility to reveal or unveil all the facts to the insurer or the insurance company.

The principle of utmost good faith explains that any distortion or deception can lead to annulment or the termination of the contract.

The insurance company has to be ultimately trusted to divulge any risk or possible damages which could be treated.

This principle has a two-faced dimension for the insured and the insurer. The insurance company should give all of the information which influences the risk and the insurer should give all the particulars about the insurance contract.

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3. Insurable Interest in the item

The insured must have an insurable interest in the item. According to the Sectional Titles Act and the Sectional Titles Schemes Management Act, this policy induces the company to insure the property on behalf of all the possessors.

This creates security and assurance for the insurance company but still maintains that the insurance company does not own the item rather its function is to direct and manages the property or the item.

4. Principle of Indemnity

This principle emphasizes the roles and functions of the insurance policy. It explains that in any contract the insurer or the insurance company should consign or entrust the insured into the same economic state or monetary state (if it is rated in monetary terms) as the insured was before the unpredictable damage occurred.

The aim is not to give the insured a new item but to help the insured to get back on their feet despite the degree of any accruable disaster.

5. Subrogation

This principle explains that whenever any disaster happens, the insurer is meant to act as if the disaster is in the company’s business.

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The insured should not or is not permitted to feel neglected when any damages occur because the insured has the backing of the insurance company.

The principle assumes that the insurer should act in placement or in the position of the insured using legality measures to be able to recuperate or convalesce the damages as an insurance company.

6. Principle of Contribution

This principle is generally referred to as the double Insurance principle. It states that where there are two policies indicating an identical or similar risk, the insured can demand or is entitled to the right to the value of the actual loss only.

The insured is not permitted by law to take both claims at the same time as the coverage cannot take any identical policies at the same time. There is no simultaneous policy agreement but each case is attended to one after the other with a premium.

7. Principle of Loss Minimization

The insured must take all the essential or required measures to reduce the damage to insured assets. It is unreasonable for an insured asset to be damaged at the slightest thing.

This principle emphasizes that as far as an asset is insured, the probability of any damage occurring to that asset must be minimal to enable the insurance company to manage and control the asset effectively. If a building is insured then certain environmental pollution should be prevented.

8. Proximate Cause Principle

This is the most operational principle which explains that insurance coverage can only cover that stated or agreed-on

item only. For instance, if a vehicle is under an insurance policy for any accidental problem, and the said item is damaged.

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The insurance company will not be involved as the vehicle is just damaged but was not involved in an accident. The insurance company only covers a direct cause not a general cause of an item.


The basics for any insurance policies are established upon principles before an agreement is reached between the insured and the insurer, these principle has to be properly studied and understood.

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