Insurance : Acts and Laws of insurance

by khalid on 14/10/2012 · 0 comments

laws of insurance

Utmost good faith

Utmost good faith is the prime principle of all the insurance principles. It stipulates that the two parties involved in insurance should act in good faith towards each other. This implies that the insurer and the insured should disclose all relevant information to make the contract viable. The insurance company should explain all the terms and conditions of its services. For instance, insurance company should tell the insured of their terms of contract. The insured on the other hand should disclose valid information and nor lie to the insurer. Failure to abide by this principle leads to termination of contract.


The principle of indemnity stipulates that the insurer should offer compensation to the insurance once a risk occurs. The insured on the other is not by any means supposed to gain financially from the compensation. This is because insurance only serves to restore the insured to their initial financial status before the risk occurred. The amount payable should not be measurable in monetary terms. However, the insured receives compensation for the loss they have incurred.

Insurable Interest

Insurable interest states that the insured should have a financial connection with the property they are insuring. Insurance is not a gambling game. Insurable interest states that the person receiving the insurance should benefit by the existence of the property and suffer a loss or prejudice by its destruction. Clients should therefore be cautious as they can insurer a property with which they are not financially connected and end up incurring a loss.


The principle of subrogation requires that after compensation, the ownership of the remaining part of the insured property shifts from the insured to the insurer. This is done to affect the principle of insurable interest. For example, when a car has an accident and the insurer declares it a total loss, the insurance company may compensate the insured with a new car. After the compensation, the written off property belongs to the insurer. The insured cannot also claim loss from another insurance company if they insure the property twice.


This principle is a corollary of the principle of indemnity. It is applicable in situations where the insured has their property insured with more than one company. This principle requires that the insurance companies contribute agreeable amounts to see that the cost of providing the risk is shared proportionally among them. The insured should not gain by getting all insurance by the company. The insured should only get the total loss incurred and not more that. In cases where one insurance company meets the compensation, they can claim compensation from the other insurances.

Proximate Cause

Proximate cause is an insurance situation where there is a relationship between the causes other risk and the loss-causing risk. If more than one risk causes a loss, then the nearest cause of loss is taken into consideration. This principle does not apply for life insurance. This is because death cannot be compensated by bringing one back to life.

Adriana Frederick is a freelance writer, professional blogger, and social media enthusiast. Her blog focuses on insurance. You can follow her on Google+

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