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Principles of Insurance

Presented By:

NARENDAR REDDY

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Principle of Indemnity

Indemnity means a guarantee or assurance to put the

insured in the same position in which he was

immediately prior to the happening of the uncertain

event. The insurer undertakes to make good the loss It is applicable to fire, marine and the other general

insurance.

Under this the insurer agrees to compensate the

insured for the actual loss suffered.

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According to the principle of indemnity, an insurance

contract is signed only for getting protection against

unpredicted financial losses arising due to future

uncertainties. Insurance contract is not made formaking profit else its sole purpose is to give

compensation in case of any damage or loss

However, in case of life insurance, the principle of

indemnity does not apply because the value of human

life cannot be measured in terms of money Pofit

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Principle of Utmost Good Faith

Both the parties i.e. the insured and the insurer should

a good faith towards each other.

The insurer must give the complete, correct and clear

information of the subject matter

The insurer must give the complete, correct and clear

information regarding terms and conditions of the

contract

This principle is applicable to all contract of

insurance i.e. life, fire and marine insurance

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Principle of Subrogation

As per this principle the insured is compensated forthe loss due to damage to property insured, then the

right of ownership of such property passes on the

insurer.

This property is corollary of the principle of

indemnity and is applicable to all contracts of

indemnity

Subrogation means substituting one creditor foranother

Principle of Subrogation is an extension and another

corollary of the principle of indemnity. It also applies

to all contracts of indemnity

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According to the principle of subrogation, when the

insured is compensated for the losses due to damage

to his insured property, then the ownership right of

such property shifts to the insurerThis principle is applicable only when the damaged

property has any value after the event causing the

damage. The insurer can benefit out of subrogation

rights only to the extent of the amount

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Principle of Insurable Interest

The insured must have the insurable interest in thesubject matter of the insurance

In life insurance it refers to the life insured

In the marine insurance it is enough if theinsurable interest exists only at the time ofoccurrence of the loss

In the fire and general insurance it must be

present at the time of taking policy and also at thetime of occurrence of loss

The owner of the party is said to have insurableinterest as long as he is the owner of the it

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It is applicable to all contracts of insurance

The principle of insurable interest states that the

person getting insured must have insurable

interest in the object of insurance. A person has an

insurable interest when the physical existence of

the insured object gives him some gain but its

non-existence will give him a loss. In simplewords, the insured person must suffer some

financial loss by the damage of the insured object

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Principle of Proximate Cause

The loss of the property can be caused by morethan one cause in succession to another

The property may be insured against some

causes and not against all causesIn such an instance, the proximate cause or

nearest cause of loss is to be found out

If the proximate cause is the one which isinsured against, the insurance company isbound to pay the compensation

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Principle of Contribution

The principle is a collar of the principle of indemnity

It is applicable to all contracts of indemnity

Under this principle the insured can claim the

compensation only to the extent of actual loss either

from any loss either from any one insurer or all theinsurers

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