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How many principles of insurance are there?


The rule of the highest good faith 
In an insurance contract, both the insured (the person with the policy) and the insurer (the company) should be honest with each other. 
The terms and conditions of the contract must be made clear and easy to understand by both the insurer and the insured. 
This is a very basic and important rule of insurance contracts because the whole point of insurance is for the insurance company to make the insured person’s life safer and more stable. But the insurance company must also watch out for people who want to trick them into giving them money for nothing. So each side is expected to be honest with the other.

If the insurance company gives you information that is false or not what it seems to be, and that information causes you to lose money, the insurance company is responsible. If you have given false information about a subject or your own past, the insurance company is no longer responsible for you (revoked).

See how a post on social media can ruin a personal injury case.

The Insurable Interest Principle 
An insurable interest just means that the subject of the contract gives the insured (or policyholder) some kind of financial gain by being there and would cause a financial loss if it were damaged, stolen, or lost.

The person who is getting insurance must have an interest in the thing that is being insured. 
The owner of the subject has an insurable interest in it as long as he or she still owns it. 
Most of the time, this is a no-brainer when it comes to auto insurance, but it can cause trouble if the person driving the car doesn’t own it. For example, if you get hit by someone who isn’t on the car’s insurance policy, do you file a claim with the owner’s insurance company or the driver’s insurance company? This is a simple but important part of a contract for insurance.

The Rule of Compensation 
Indemnity is a promise to put the insured back in the same position he or she was in before the unknown event that caused the insured to lose money. The insurance company (provider) pays the insured (policyholder). 

The insurance company says it will pay the policyholder up to the amount agreed upon in the contract for the amount of the loss. 
Basically, this is the most important part of the contract for the insurance policyholder because it says that she or he has the right to be compensated or, in other words, indemnified for their loss.

The amount of compensation is directly related to how much money was lost. The insurance company will pay up to the amount of the loss or the amount agreed upon in the contract, whichever is less. For example, if your car is insured for $10,000 but the damage is only $3,000. You don’t get the full $3,000.

When the event that caused the loss doesn’t happen within the time frame in the contract or from the agreed-upon causes of loss, there is no compensation (as you will see in The Principle of Proximate Cause). Insurance contracts are only made to protect people from things they can’t plan for, not to make money off of other people’s losses. So, the principle of indemnity protects the insured from losses, but there are rules that keep him or her from being able to cheat and make money.

How to Make a Contribution 
Contribution sets up a link between all the insurance contracts that have to do with the same event or subject. 
The insured person gets compensation from all the insurance contracts that were involved in his or her claim up to the amount of the real loss. 
For example, let’s say you bought two insurance policies for your used Lamborghini so that you would be fully covered no matter what. Let’s say you have a policy with Allstate that covers property damage up to $30,000 and a policy with State Farm that covers property damage up to $50,000. If you get into an accident that costs $50,000 to fix, you won’t have to pay. Then, Allstate will pay about $19,000 and State Farm will pay about $31,000.

This is what “contribution” means. If you have more than one policy on the same thing, each one pays a portion of the loss that the policyholder has to pay. It’s an extension of the principle of indemnity that lets all insurance coverage for the same thing be split into equal parts.

The Subrogation Principle 
This idea can be a little hard to understand, but the example should help. Subrogation is when an insurance company stands in for another creditor. In this case, the other creditor is another insurance company that represents the person who caused the loss.

After the insured (the person who bought the policy) has been paid for a loss on the insured property, the insurer gets the right to own that property. 
So, let’s say you get into a car accident that was caused by someone else, and you file a claim with your insurance company to pay for the damage to your car and your medical bills. Your insurance company will take ownership of your car and pay for your medical bills so that it can step in and file a claim or lawsuit against the person who caused the accident (i.e., the person who should have paid for your losses).

Subrogation is only good for the insurance company if it gets back the money it gave to the policyholder and the money it spent to get this money. The policyholder gets any extra money paid by the third party. So, let’s say your insurance company sued the negligent third party after paying you the full amount of your damages. If their lawsuit wins more money from the negligent third party than they paid you, they’ll use the extra money to pay for court costs and give you the rest.

This is called “proximate cause.” 
Loss of property that is insured can be caused by more than one thing, even if they happen right after each other. 
Some kinds of loss can be covered by insurance, but not all of them. 
If a property is not insured against all possible causes of damage, the closest cause must be found. 
If the damage was caused by something that was insured against, the insurance company has to pay. If it’s not something that the insurance covers, the insurance company doesn’t have to pay. 
When you buy your insurance,

you’ll probably go through a process where you choose which situations you and your property are covered for and which ones are not. Here is where you choose which near-term causes are covered. If you get into an accident, the insurance company will have to look into the direct cause to make sure that you are covered for the accident.

This can cause problems if you have an accident you thought your insurance would cover but your insurance company says it doesn’t. Insurance companies want to keep themselves safe, but sometimes they can use this to avoid being responsible for something. You might need a lawyer to help you argue your case in this case.

The idea of keeping losses as low as possible is 
This is the last rule that makes up an insurance contract, and it’s probably the easiest one.

In the case of an uncertain event, it is up to the insured to take all the necessary steps to limit the damage to the insured property. 
When bad things happen, insurance contracts shouldn’t be about getting free stuff. So, the insured has a little bit of responsibility to take all steps possible to limit the damage to the property. If you think this principle is being used to judge you unfairly, you should talk to a lawyer.

So, that’s what makes up an insurance contract, ladies and gentlemen. 
Call us for a free consultation if you think your provider broke a contract with you or didn’t do what they were supposed to do. We can help you understand insurance company jargon and fight against its history of treating policyholders unfairly.

Who Wrote This: At the McMinn Law Firm, Justin McMinn is a partner. Justin McMinn helps people in Austin and the nearby areas who have been hurt in accidents. He specializes in cases where people get hurt in car, truck, and bicycle accidents. Since 2007, he has worked as an accident lawyer at McMinn Law Firm.


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