Name: Pushkar
Course: B.Com (Hons)
Roll Number: 24/43570
Subject: Financial Literacy
Section: A4
Assignment: Principles of Insurance
Insurance is based on certain key principles that ensure fairness, transparency, and trust between
the insurer and the insured.
The six main principles of insurance are:
1. Utmost Good Faith (Uberrimae Fidei):
Both parties must disclose all material facts honestly.
Example: When buying life insurance, the policyholder must provide accurate medical history.
2. Insurable Interest:
The policyholder must have a financial interest in the subject matter of the insurance.
Example: A car owner can insure their car but cannot insure someone else's car.
3. Indemnity:
Insurance provides compensation to restore the insured to their original financial position before
the loss.
Example: If a house is damaged in a fire, the insurance company pays for repairs.
4. Contribution:
If multiple policies cover the same risk, the insurers share the claim proportionately.
Example: Two health insurance policies can contribute to a hospital bill.
5. Subrogation:
After compensation, the insurer can take over the rights to recover the loss from a third party.
Example: If a car accident is caused by a third party, the insurer can recover the claim amount
from the at-fault driver.
6. Proximate Cause:
The closest and most direct cause of the loss must be covered under the policy terms.
Example: If a storm damages a roof and causes flooding inside, the storm is the proximate cause.
These principles form the foundation of the insurance industry and ensure trustworthiness in all
transactions.
