The Principles of Conventional Insurance

As the other many profit oriented businesses, insurance has principles, they are:
a. Principle of Indemnity
Except life and personal accident insurance, every contract of insurance is normally a contract of indemnity because it insures compensation for loss to the insured. The insurance company agrees to recover this loss as the change of the receipt premium. The purpose of this agreement is to shift the burden of the probable risk from the insured on to the shoulders of insurance company .
The maximum limit of the insurer obligation is to take the insured on to his economic position as well as before the loss happening . According to this principle, the insured is indemnified according to the limit of his loss and no more. He cannot receive any sum of money from insurer more than the value of his loss under any circumstances. In this matter, the insured is not allowed to make a profit.

b. Principle of insurable interest
The insured must has an insurable interest; where a man is so circumstanced with respect to matter exposed to certain risks or damages, or to have a moral certainly of advantage or benefit, but for those risks or dangers, he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction .
In his book, T.J. Dorhout Mess explained that the definition of interest is a pure economic factor, so it is absolutely difficult to give its law limitation . A man can has the insurable interest because of value decreasing of own subjective due. A burning house, for instance. This burning cause the house’s owner loses the interest that he has before the happening. Also, the man may have the interest because of his missing hope to gain something. Based on some cases above, it can be concluded that the definition of insurable interest, normally, is the risk.
The principle of insurable interest is important for policyholder because it can decide whether the insured is able to propose the claim. Therefore, the insured must know exactly the sources of insurable interest, whether it has the quality of article or the quality of due.
c. Utmost Good Faith Principle
The insured is required to state all facts accurately and in good faith. He must not make any misrepresentation with regard any facts. Any facts known to him must be disclosed, and he cannot escape the consequences of not revealing them by saying that he did not know. Failure to do so will render the contract voidable . And finally, the insured cannot claim the insurer to fulfill the contract, and to compensate the loss, because the happening risk is different with the assured risk in the previous agreement.