Principles of Insurance


Insurance companies take risks whenever they issue an insurance policy to someone.  This is because they have to trust the disclosure the client says on what is being insured.  Since they are not able to fully examine what is being insured to them, they are left with no choice but to trust what the client says to them.  This leaves insurance companies vulnerable to scheming individuals or group of people who attempt to screw them for money.  As a means of protection, they have built six Principles of Insurance to abide by so they do not get screwed by people who plan to underhand their business.

Six Principles of Insurance:

Principle of Utmost Good Faith – it has come to an understanding that the client discloses everything that needs to be disclosed over the item that they are insuring.  Proper disclosure allows for proper evaluation of the item being insured.  Failure to reveal important matters on the item being insured will render the policy void and claims made on such will be denied.

Principle of Insurance Interest – it is believed that the item being insured is valuable to the client, otherwise, the insurance company will not insure something that the client does not hold great value to.  Insurance companies’ takes great risk in insuring something the client does not really find valuable or important to them.  Insuring something that is not important means you intend to commit fraud.

Principle of Indemnity – claims given to clients will not exceed the amount of cost needed to repair or replace the item insured.  Once claims have been provided by the insurer, the insurer indemnifies that the insured item will be in its pre-damaged condition.

Principle of Proximate Cause – due to the different coverage available for different types of insurance, any damage or loss that is not within the boundaries or inclusions of the insurance coverage will be denied of claims.

Principle of Subrogation – damage caused by a third party will be at the cost of the insurer.  However, the insurer reserves the right to sue the third party for damages made unto the insurer.  Normally, the settlement insurers require are more than double the claims provided to their policyholders.

Principle of Contribution – even though you can have the same insurance policy from two different insurance company does not mean you can receive claims from both of them.  A policyholder is only allowed one claim which both insurers will contribute to fulfill the claim.