UNDERSTANDING PRINCIPLES OF INSURANCE :
The business of insurance aims to protect the economic value of assets or life of a person. Through a contract of insurance the insurer agrees to make good any loss on the insured property or loss of life (as the case may be) that may occur in course of time in consideration for a small premium to be paid by the insured.
Apart from the above essentials of a valid contract, insurance contracts are subject to additional principles. These are:
1. Principle of Utmost good faith
2. Principle of Insurable interest
3. Principle of Indemnity
4. Principle of Subrogation
5. Principle of Contribution
6. Principle of Proximate cause
7. Principle of Loss of Minimization
These distinctive features are based on the basic principles of law and are applicable to all types of insurance contracts. These principles provide guidelines based upon which insurance agreements are undertaken.
A proper understanding of these principles is therefore necessary for a clear interpretation of insurance contracts and helps in proper termination of contracts, settlement of claims, enforcement of rules and smooth award of verdicts in case of disputes.