Five principles of an Insurance contract are:
1. Utmost good faith: An insurance contract is based on utmost good faith on the part of both the parties. One who wants to get an insurance policy it is his duty to disclose all the material facts about the subject to be insured. The amount of premium is fixed on the basis of the information supplied by the proposer.
2. Insurable Interest: Insurable interest is an essential element in every insurance contract. In the absence of insurable interest, a contract of insurance becomes a wagering contract which is null and void and unenforceable at law. Insurable interest means that the insured must be in such a position that he will suffer a primary loss by the happening of the event insured against. A person is said to have an insurable interest in the subject matter insured, if he is benefited by its existence and suffers a loss by its destruction.
3. Indemnity: Indemnity means a promise to compensate in case of loss. The object of every insurance contract is to place the insured as nearly as possible in the same financial position after the loss as he was before the loss. The insured is entitled to recover from the insurer only the amount of loss actually suffered. The maximum amount of compensation will be upto the sum insured on the value of the policy. The insured will not be allowed to make any profit out of the happening of any loss covered by insurance contract.
4. Doctrine of Subrogation: It implies that after indemnifying the insured for his loss, the insurer becomes entitled to all the rights and remedies to the property insured^ The insurer shall step into the shoes of insured. Doctrine of subrogation is applicable to all contracts of indemnity and it is not applicable to life insurance.
5. Mitigation of Loss: According to this principle, it the duty of the insured to take all possible steps to minimise the loss or damage in case of a mishap. The insured should not be careless in the event of any accidental loss just because the property is insured. He should behave like a prudent person and make reasonable effort to save the insured property.
