What are the Principles of Insurance?

There are seven principles that are followed by all insurance companies, which include Principle of Utmost Good Faith, Principle of Insurable Interest, Principle of Indemnity, Principle of Contribution, Principle of Subrogation, Principle of Loss Minimization, and Principle of Nearest Cause. Of course, unless you are in the insurance industry you still have no idea what these mean, so if you keep reading you will learn the basics.

The Principle of Utmost Good Faith is nothing more than both the individual and the insurance company signing the contract in trust, belief or good faith. The insured person must provide the insurance company with true information or the policy can be cancelled by the insurance company.

The Principle of Insurable Interest is nothing more than the person that is getting an object has an insurable interest if there was any type of loss or damage such as your vehicle or your life.

The Principle of Indemnity is once again nothing more than compensation, protection, and security against the injury, loss or damage of the person or item that is being insured. The amount provided to the insured party will be an agreed upon as the amount for such policies as life insurance or the amount it will take to repair or replace the item lost, damaged, or stolen.

The Principle of Contribution is for any contracts of indemnity if the insured has taken out more than one policy on the same item. When this occurs the insured is only allowed to claim the amount of money of the actual loss from the different insurers or from just one insurer.

The Principle of Subrogation is the principle that allows the substitution of one creditor for another creditor. If the insured has been compensated for the damages, the property now belongs to the insurer.

The Principle of Loss Minimization means that the insured person must do what they can to minimize the loss such as having smoke detectors, using fire extinguishers, and other items that can be done to try your best to protect your items that are insured.