The cost for the risk made by the insurer and the insurer is paid by the insured, it is called “premium” and the document in which the contract of insurance is called is “Policy”. An insurance contract is a contract by which a person attempts to compensate another person against the loss of occurrence of an event or to pay the amount upon the occurrence of any event. The person who ensures that he is called “insurer”. The person who affects insurance is called “insured” or “assured”. In insurance, the insurance policy is an agreement between the insurer and the insured (usually a standard form of contract), which is known as the policyholder, which determines the claims required to pay the insurers legally. Do you study to learn: If Yes? Then read the lot. Let’s Study: What are the Principles of the Contract of Insurance? Define. Read this in the Hindi language: बीमा अनुबंध के सिद्धांत क्या हैं? परिभाषित…।

The concept of Insurance Discussing the topic: What are the Principles of the Contract of Insurance? Define.

In exchange for initial payment, known as premium, the insurer promises to pay for the loss due to the dangers covered under the policy language. An insurance contract is an insurance company that represents the agreement between the insurance company and the insured. There is a central insurance agreement for any insurance contract, which specifies the risks covered, the limits of the policy, and the duration of the policy. You also need to know about: Types of Insurance.

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Insurance Contract: “Almost all of us have insurance. When your insurer gives you the policy document, generally, all you do is glance over the decorated words in the policy and pile it up with the other bunch of financial papers on your desk, right? If you spend thousands of dollars each year on insurance, don’t you think that you should know all about it? Your insurance advisor is always there for you to help you understand the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we’ll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life.” The definition reference by Investopedia.

The Principles of the Contract of Insurance:

Following are the general principles of the contract of insurance:


According to the rule of subrogation, when the loss is caused to the insured by the conduct of a third party, the insurer shall have to make good such loss and then have a right to step into the shoes of the insured and bring an action against such third party who caused the loss to the insured. This right of subrogation is enforceable only when there is an assignment of cause of action by the insured in favor of the insurer. The doctrine of subrogation does not apply to life insurance.


Where there are two or more insurances on one risk, the principle of contribution applies as between different insurers. The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable for the same risk under different policies in respect of the same subject-matter. In case of loss, anyone insurer may pay to the assured the full amount of the loss covered by the policy. Having paid this amount, he is entitled to contribution from his coinsurers in proportion to the amount which each has undertaken to pay in case of loss of the same subject-matter.

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Period of Insurance:

Except in the case of life insurance, every contract of insurance comes to an end of the expiry of every year, unless the insured continues the same and pays the premium before the expiry of the year.


Every contract of insurance such as life insurance and personal accident and sickness insurance is a contract of indemnity. So, the insurer pays the actual loss suffered by the insured. He does not pay the specified amount unless this amount is the actual loss to the insured.

Mitigation of Loss:

The insured must take reasonable precautions to save the property, in the event of some mishap to the insured property. He must act as a prudent uninsured person would act in his own case under similar circumstances to mitigate or minimize losses.

Insurable Interest:

The assured must have, what is called “insurable interest” in the subject matter of the contract of insurance. “He must be so situated with regard to the thing ensured that he would have benefit from its existence, loss from its destruction”.

Risk must Attach:

The insurer must run the risk of indemnifying the insured. If he does not run the risk, the consideration for which the premium is paid fails and consequently, he must return the premium paid by the insured.

Causa Proxima:

The insurer is liable for loss which is proximately caused by the risk insured against. The rule is “Causa Proxima non-remote spectator”, i.e. the proximate but not the remote cause is to be looked to. So, the loss must be proximately caused in order that the insurer is to become liable.

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Uberrimae Fidei:

A contract of insurance is a contract Uberrimae Fidei, i.e. a contract requiring utmost good faith of the parties. So, all material facts which are likely to influence the insurer in deciding the amount of premium payable by the insured must be disclosed by the insured. Failure to disclose material facts renders the contract voidable at the option of the insurer. Read this in the Hindi language: बीमा अनुबंध के सिद्धांत क्या हैं? परिभाषित…।

What are the Principles of the Contract of Insurance Define
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