7 Principles of Insurance


There are certain principles that guard insurance policies. These principles are in place to validate the authenticity of a policy. Without these principles, it’s safe to say that the policy may be invalid. Today, we’ll be discussing these principles below. 

Seven Principles of insurance and its application

1. Nature of Contract

 This is fundamental to the policy, as it defines exactly what the policy and coverage are about. A contract comes to fruition when a party makes an offer or proposal and the other party accepts it.

For instance, a life insurance contract should be easy to understand and digest so that all parties are aware of expectations. The person entering the contract should do so out of a free will and not under any kind of duress. 

2. Principle of Utmost Good Faith

In this contract, both parties should have faith in each other. Faith to the insurer that the limitation and coverage in the policy will be adhered to. Faith should also give the insured that payment for the coverage offered. The insured will settle in a timely manner based on the agreement written. Any fraud or misrepresentation can lead to cancellation of the contract.

3. Principle of Insurable Interest

The insured must be interested in getting the insurance policy. If there is no insurable interest, there will be no need for the insurance company to offer coverage. The interest must exist in time for the purchase of the insurance. For example, a person purchasing life insurance must have an insurable interest in their beneficiary, who is typically a spouse. 

4. Principle of Indemnity

Indemnity means compensation against loss or damage. The principle of indemnity is that the insured cannot compensate for more than the economic loss of the object or person insured. The compensation must be equivalent at all times. This principle sets back the insured to the same financial position that existed before the loss or damage. 

5. Principle of Subrogation

This principle enables the insured to claim compensation from a third party involved (if applicable). With car wreck, it is possible that if the wreck was the fault of another person, the insured may claim compensation from them directly. 

6. Double Insurance

This principle alludes to having different policies from different companies for the same subject matter or having two different policies from the same company for one subject matter. This typically happens when the financial position of the insurer is doubtful. They usually write these types of contracts for fire, marine and property insurance. 

7. Principle of proximate cause

This is applicable when there are about two causes that have resulted in the loss or damage. The most dominant cause will be the one considered. 


The principles listed here are important to know as you’re seeking insurance or about to file a claim.

It is best to be educated about certain principles that may apply to your situation, so you can have wholesome conversations with your insurance agent. If you have questions about the principles listed, please speak to an agent here. 

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkedin
Share on pinterest
Share on Pinterest

Leave a comment

Social Media

Most Popular

Get The Latest Updates

Subscribe To Our Weekly Newsletter

No spam, notifications only about new products, updates.
Related Posts

CIC Insurance

CIC insurance group is a giant financial institution based in Kenya Nairobi. Established far back in 1968, the CIC group has branches across different countries