Principles of Insurance

These are rules and conditions that both the insurer and the insured must accept and strictly uphold specifically stated rules and conditions for the insurance contract to operate smoothly.

1.Contract uberima fides.

This principle is known as ‘’utmost good faith’’. This principle requires that the person completing the proposal term does so honestly by disclosing all materials facts concerning the life and property insured. This has to be done because the premium to be paid by the insured will depend on these facts e.g. a person is suffering from a serious disease, he should disclose this fact to the insurer.

2.Insurable interest.

This means that the right to insure exists only if the risk to be covered has a direct bearing on the insured.

In a contract of insurance, the assured must be so situated with regard to the thing insured that he would have benefited from its existence and loss from its destruction. This is known as insurable interest.

A person can affect insurance only if he possesses this interest in the thing or person insured. This is fundamental to all types of insurance.

3.Proximate cause.

This principle insists that there must be a fairly close or direct connection between the loss actually suffered and the risk against which insurance had been taken out. If other risk mentioned in the agreement or policy are involved, the insurer may refuse to pay e.g. if a house is insured against fire and is robbed  and set on fire by robbers , the insurer may not pay because he immediate cause of the loss in case is not fire but robbery.


The aim of insurance is to put you back to your original financial position before the loss and not to enable you make profit. thus if the property insured at ksh 100,000 is destroyed and it is found that the property can be replaced at ksh 50,000 only the insurer will pay ksh 50,000.this is only applicable to all insurance types expect life and personal accident because;their losses can not be precisely measured,the insured can not be put exactly the same position before loss,it is not possible to provide exact financial compensation because life,limbs and health cant be measured in financial terms.


It implies that that following the total compensation of the insured by the insurer for a loss arising out of an insured risk,any extra benefit that may remain belongs to the insurer.

In the case of a contract of insurance with the exception of life assurance and personal accidents insurance, the insurer on the payment of a claim under a policy is subrogated to all the rights and remedies of the insured. For instance where the insurer settles a claim for a total loss in respect of a file insurance policy, he will be entitled to all the interest of the insured in what is left of al subject matter insured.


Some property like ships, aircrafts are so expensive that one firm is not able to undertake the insurance cover. Such property may therefore be insured with more than one insurance firm. When such property is destroyed, each firm will make contribution to settle the claim.this results when the same risk is insured by two or more insurance companies iedoubleinsurance.this means that two insurance companies have covered the same subject matter.this principle ensures that any claim effected is split among the insurance companies may cause a breach of principle of indemnity if the insured was allowed to receive compensation from all the insurers.

7.Re insurance.

This is where one firm which has undertaken to protect another firm or person against a big loss  such as destruction of a factory , a aircraft, a ship etc. also insures itself against such big claim with another insurance firm so that it can ask for contribution when the claim is made.

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