Nature Of Insurance:

• The Insurance is a contract. Thus all the essentials of contract must be fulfilled.
• The Insurance contract should be based on the subject matter which has an Insurable Interest in it. Like for vehicle owner his vehicle is an insurable interest because in case of loss or damage to the said vehicle he/she can suffer financial crises/loss. It can be compensated through the insurance if he/she insured their vehicle.
• The Insurance is for pure risk. The person can't insure the subject matters in which the probability of risk is not involved in it. So the contract of Insurance compensates for loss or damages which an insurer will incur due to such risk.
• The Insurance is based on certain principles. The parties to the Insurance contract must act in accordance with such principles and in-case of non-compliance the aggrieved party can proceed in accordance with the due procedure of law or in accordance with term of insurance contract.
• The nature of Insurance is a medium of sharing risk by a massive number of people amongst the few who are open to risk by some or other reason.
• If a huge number of insured people serve the purpose of compensation for a few among them exposed to uncertain risk, this nature of insurance is described as a co-operative device.
• The amount of compensation in an insurance is predefined according to the terms and condition of the insurance contract.
• Insurance provides aspects of financial help in case of an uncertain event.
• The payment of compensation in an insurance contract primarily depends on the value of the insurance policy/contract.
• As insurance is contractual in nature, it is regulated under due procedure of law. Because of which the amount of insurance can either be paid as a gambling or as charity, it has to be paid according to the terms and condition of the insurance contract.

Principles Of Insurance:

• Utmost Good Faith:
  According to this principle both the parties to the insurance contract must disclose all the facts required and necessary for a particular insurance contract.
  
  Ex:
  The insurance company must disclose all information relating to the insurance policy to the insured. If on the later stage the insured find out that company does not disclosed any facts, then the insured can cancel the insurance contract any time. Likewise, the insurer can also do the same for ex: in case of a Health insurance the insured person has a habit of smoking but he has not disclosed the fact to the insurer.
  
  Meanwhile the insured person got cancer and then he goes to claim the insurance expenses according to the insurance contract in this scenario according to this principle the company can reject the claim. Stating that the insured not acted as a common prudent person and not fully disclosed all facts necessary for Health insurance contract.
   
• Proximate Cause:
  In case the property/building has sustained losses due to an uncertain event. According to the principle of proximate cause the accident i.e. the proximate cause shall be taken into consideration by the insurer for giving the claim for losses occurred to a particular property or building and not events happened in connection to that particular accident.
  
  EX:
  There were two adjacent building in one of the building fire accident took place and the municipality decided to demolish that building in which fire accident happened because of which the adjacent building sustained damages. So according to this principle of proximate cause, for damages to the property is caused by the fire accident which is covered under the insurance contract and the insured can claim the same.
   
• Insurable Interest:
  According to this principle i.e. insurable interest the particular subject matter/property to the insurance contract must be an insurable interest which means a particular person's livelihood is based on such property which is being insured.
  
  EX:
  A taxi driver or a person is the single earning member of family and the family is wholly dependent on his income. In case of uncertain event the family will suffer huge damage and financial crises.
  
  • In case of taxi driver- his livelihood is running on the vehicle which is being used. So the vehicle is the insurable interest.
  • In the case were the person is the single earning member of the family. So that person can get insured of life insurance for himself. Which is an insurable interest.
     
• Indemnity:
  The insurance contract is based on the principle of indemnity which means the insurer shall only indemnify for any loss or damage to the insured subject matter or property which has occurred due to an uncertain event.
  
  EX:
  In a building fire accident took place. In this case insured can claim damages under fire insurance contract and can retrieve the building's earlier condition but he can't claim more than that i.e. he cannot claim under the insurance contract for further development of building or for decoration or renovation of that particular building. Basically insured can't claim amount which is not required or not covered under the insurance policy. He can't get benefit out of the claim amount other than for retrieving the building.
   
• Subrogation:
  In this type of insurance contract where damage is caused by third party. Then the insurance company claim compensation from that person's insurance and give it to the insured. This principle is called as principle of subrogation.
  
  EX:
  In a motor vehicle insurance every vehicle should at least have a third party insurance to compensate injury/loss which may be caused to the third party.
  
  If 'A' hits with a vehicle on B's vehicle, then 'A' has third party insurance and 'B' is also insured then the insurer shall claim the compensation claim from A's insurance and give it to 'B' who is insured. So the insurance contract is based on the principle of subrogation.
   
• Contribution:
  According to the principle of contribution in insurance contract. If a subject matter/property is insured by from one or more insurer, then in case of loss/injury occurred the claim for compensation shall be equally contributed by all the insurers this principle is called as principle of contribution.
  
  EX:
  If A's vehicle is insured from three different insurances companies, then if that vehicle met with an accident. The loss/injury caused to the vehicle shall be equally contributed by the three insurance companies for the claim of compensation this is known as principle of contribution.
   
• Loss Minimization:
  According to this principle of loss minimization The insured must take all reasonable and just step to safeguard the subject matter/property to the insurance contract from damage or loss. He should take appropriate steps to minimize the loss of subject matter/property in case of occurrence of uncertain event.
  
  EX:
  In a fire insured building fire accident took place. The insured should take all appropriate and reasonable steps to minimize the loss to the properties in the building. He should not standstill thinking that I have insured and I can retrieve the building's earlier condition and should not act unreasonably. If he has not acted in prudent manner in that case company will not provide him the compensation or claim for loss. This principle is called as Loss minimization.

• Elements Of Banking And Insurance By Jyotsna Sethi Nishwanbhatia.