INSURANCE: Basic Principles of Insurance


In the insurance agreement, there are several principles that must be understood and obeyed by both parties so that insurance coverage becomes valid, that is:

Insurable Interest:

It is the right to insure, arising from a financial relationship, between the insured and the insured and legally recognized.

Thus, you are said to have an interest in the object of the insured if you suffer financial loss in case of a disaster that causes loss or damage to the object. This financial interest allows you to insure your property or interests. In the event of an accident on an object insured and proven that you have no financial interest in the object, then you are not entitled to indemnification.

Utmost Good Faith:

It is an act to express accurately and completely, all material facts about something that will be insured whether requested or not. The meaning is: the insurer must honestly explain clearly everything about the extent of the condition / condition of the insurance and the insured must also provide a clear and true description of the object or interest that is insured.
The point is that you are obliged to provide as clear and accurate as to all the important facts related to the object insured. This principle also explains the risks that are guaranteed or excluded, all terms and conditions of coverage clearly and thoroughly.

Proximate Cause:

It is an active, efficient cause that leads to a chain of events that results in a consequence without the intervention of an active and initiated start from a new and independent source.

So if the interests of the insured or unfortunate accident, then first sought the causes of active and efficient that moves a series of events without interruption so that in the end there was a disaster or accident.

A principle used to find the cause of active and efficient losses is: “Unbroken Chain of Events” is an unbroken chain of events.


It is a mechanism whereby the insurer provides financial compensation in an attempt to place the insured in his / her financial position shortly before the occurrence of loss (KUHD article 252, 253 and affirmed in article 278).


Is the transfer of claim rights from the insured to the insurer after the claim is paid.

The principle of subrogation is stipulated in article 284 of the Law on Trade Law, which reads: “If an insurer has paid full compensation to the insured, then the insurer shall replace the position of the insured in all matters to prosecute a third party that has caused loss to the insured”.



It is the right of the insurer to invite other insurers who both bear, but not necessarily the same obligation to the insured to participate in giving indemnity.

You can just insure the same property on several insurance companies. However, in the event of loss of an insured object it automatically applies the principle of contribution.

Also Read:

INSURANCE: Insurance Functions and Purposes

INSURANCE: Planning an Insurance Program

INSURANCE: Types of Insurable Risks

INSURANCE: What is Insurance?

INSURANCE: Term In Insurance

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INSURANCE: Insurance Functions and Purposes

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INSURANCE: Planning an Insurance Program

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