What Are the Six Principles of Insurance?

The six principles of insurance are something that every new insurance agent learns before getting an insurance sales license. These six tenets remind agents at all times of insurance industry standards. The six principles of insurance are basically a cheat sheet that should direct you at all times as an insurance agent.


Insurable Interest

Insurable interest means that in order for the insured to start an insurance policy, he must have an ownership or financial interest in whatever it is he wants to insure. This keeps people from taking insurance policies out or making claims that don't directly affect them. For example, you cannot take out an insurance policy on the Eiffel Tower unless you have an ownership interest in it, or are otherwise harmed, physically or monetarily, should something happen to the structure.


Video of the Day


To indemnify is to compensate a person for losses sustained. Indemnity in an insurance-sense simply means that your policy protects you from loss by covering whatever it is that you are insuring. The best example would be car insurance. If you wreck your car, you get compensated for your loss. This is indemnity.

Uberrimae Fidei

Uberrimae Fidei, or "good faith," means that the insurer is dependent on you, the insured, to disclose any relevant information about yourself or whatever it is you are insuring. If you want to get health insurance, good faith means that you will disclose any previously existing health conditions.



Subrogation is the insurance company's right to take action on parties that may have caused the claim against your insurance. For example, if you are involved in an auto accident that you didn't cause, the insurance company has the right to collect damages from the person that caused the accident or his insurance company. This allows the insurance company to recoup any losses due to claims for which the insured wasn't responsible.

Contingency Insurance

Contingency insurance is essentially a worst case scenario policy. The best example would be exporting freight to a buyer on the other side of the country. Should the truck show up to the buyer with lost or damaged goods, and the buyer refuses to take delivery because of this, you can file a claim through your contingency policy. Most contingency claims are filed by retail suppliers.


Proximate Cause

Proximate cause is basically insurance that covers losses that other types of insurance don't cover. For example, assume that a plane carrying three tons of Halloween costumes crashes on the runway upon landing. The accident isn't severe, and the costumes aren't damaged, but they end up arriving a week after Halloween, which costs the retailer several thousand dollars in revenue. Since they aren't damaged and were indeed delivered, the retailer may not be able to file a claim under most types of insurance. Policies that include proximate cause allow you to recoup your damages when the unexpected happens.