A person who wants security for his property then the best option for him is to take insurance from insurance company. In future, any loss occurred like theft, fire, accident etc. then it is suffered only by the insurance company. Losses which are related to the natural calamity are not included in insurance. Insurance is a medium through which minimize the economic losses. To cover the loss, amount is paid to the insurance company in monthly, quarterly, and half year is called insurance premium.
· Principle of utmost good faith: It includes two parties like: insurer and insured. When any person (like insurer) take insurance always each and every fact about property must disclosed with the insured person. At the time of making the contract there is always a good faith between both the parties. If any fact not disclose then insurance company is not liable to meet the losses of insured goods.
For example: when any person take life insurance but he is suffered from cancer then these fact is not disclosed with the company then in such case insurance company is not liable to pay the compensation.
· Insurable interest: It is the necessary for a valid contract that insured must have insurable interest in the insured property. Insurable interest is established by ownership, possession, or direct relationship. When he must have no insurable interest in the insured property then it is a void contract.
· Personal contract: it is a personal contract that the insurance company collect all the information about the dealing, behavior, and character of insure person. The contract being personal in nature, the insured can’t transfer insurance policy to any other person without the permission of insurance company.
· Principle of indemnity: indemnity means compensation of loss. This principle is applicable to all types of insurance except in case of life insurance. The principle of indemnity dictates that the insured is compensated for a loss of property, but is not compensated for more than what the property was worth.
- Principle of contribution: if a person take two or more than two insurance then during any loss occurred it doesn’t mean that it received compensation for all the insurance company. In this case only actual loss is paid to the insurer. It is paid jointly by the insurance company.
· Mitigation of losses: it is the responsibility of every insurer to mitigation of losses. No one can think that insurance is done so don’t take tension about the losses.
For example: a fire occurred in factory then owner must make possible efforts to minimize the loss like information to the fire brigade.
- Principle of causa proxima: This is a principle of insurance lying that the insurer is liable only for those losses which have been proximately caused by the peril insured against. the insurance company will compensate for loss incurred by insured due to reason mentioned in the insurance policy.
(Hamilton v/s Pandrof).
CASE STUDY: In a marine policy, the goods were insured against damage by sea-water. Some rats on board bored a hole in a zinc pipe in the bath which caused sea-water to pour out and damage the goods. The underwriters contented that as they had not insured against the damage by rats they were not bound to pay. It was held that the proximate cause of damage being sea-water the insured was entitled to damages, the rats being the remote accuse.