Q.Define insurance. Explain any four principles of insurance.

Insurance is a risk-sharing contract: the insurer compensates the insured for a defined loss in return for a premium. Four principles: utmost good faith, insurable interest, indemnity, and subrogation (others include contribution and causa proxima). A standard TS Inter 2nd-year Commerce / NCERT-aligned question.

Insurance: Definition and Principles

Definition: Insurance is a contract between two parties — the insurer and the insured — whereby the insurer agrees to make good a specified loss suffered by the insured, in return for a consideration called the premium. It is essentially a device for sharing and spreading the risk of loss among many people who are exposed to a similar risk, so that the loss of the unfortunate few is borne by the contributions of all.

Four principles of insurance:

1. Principle of utmost good faith — both parties must disclose all material facts truthfully and completely. The insured must not conceal anything about the subject matter of insurance, and the insurer must disclose all terms of the contract.
2. Principle of insurable interest — the insured must have a financial interest in the subject matter, that is, he should stand to gain by its existence and suffer loss by its damage or destruction. Without insurable interest the contract is void.
3. Principle of indemnity — the insured is compensated only for the actual loss suffered and not more, so that insurance restores him to the position he was in before the loss. (This applies to general insurance, not to life insurance, which is a contract of assurance.) …