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Insurance Contracts: 7 Principles you Need to Know

insurance contracts

Insurance contracts must follow guidelines in accordance with state and federal regulations and laws. Unfortunately, most consumers never really get the information they need to understand what their insurance contract really means. Sure, we all get the stack of policies and information, but it is difficult to decipher, and often seems irrelevant.

If you have ever filed an insurance claim, you are likely well aware of the headache dealing with your insurance company can be. Suddenly, those not-so-relevant policies are a hot topic of conversation. When it comes to insurance contracts, there are seven principles you need to know that can help you decide when it’s time to contact an attorney for help.

7 Principles You Need to Know about Insurance Contracts

1. The Principle of Utmost Good Faith

Both parties to an insurance contract (or any contract) should behave in good faith toward one another. This includes providing clear, concise, and legally sound information about the contract terms and any changes.

2. The Principle of Insurable Interest

Insurable interest means that the subject of the insurance contract must offer financial gain to the consumer, and would create a financial loss if it becomes stolen, damaged, or destroyed.

3. The Principle of Indemnity

Indemnity refers to the insurance contract restoring the consumer to the position he or she was in prior to the incident that resulted in loss. The insurance contract should detail how the insurance company will compensate the policyholder, and for how much, in the event of loss.

4. The Principle of Contribution

The principle of contribution is what allows the policyholder to claim indemnity of actual loss involved in the claim. It also establishes a corollary between the contracts involved and an incident involving the same.

5. The Principle of Subrogation

Subrogation refers to replacing/substituting one creditor for another, such as one insurance company for another. This is an important principle for individuals injured due to a third party because his or her insurance company can take ownership and ensure that the responsible party is the one who will pay for the loss.

6. The Principle of Proximate Cause

The principle of proximate cause holds that:

  • The property loss may be due to more than one incident, including incidents in succession of one another.
  • The property may be insured against certain forms of loss, but not all.
  • When the property is not insured against all forms of loss, the nearest cause is the focus.
  • If the proximate cause is covered under insurance, then the insurer is responsible for paying compensation. If not, the insurer is not responsible.

7. The Principle of Loss Minimization

In the event of an incident, the policyholder has the responsibility to minimize loss on insured property.

Get Help with Your Insurance Contract Questions

If you have questions about your insurance and the process of getting help after a personal injury accident, contact Daic Law today. Schedule your free consultation and let our skilled attorney help you make sense of the complex nature of insurance contracts. Call us at 877-893-6040, or email us at to learn more.


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