Q.State any four general principles that govern an insurance contract.

The core principles governing every insurance contract include utmost good faith, insurable interest, indemnity and subrogation, among others covered in this chapter.

Any four of the seven principles covered in this chapter would be accepted; four representative ones are given below.

An insurance contract is governed by several general principles, of which any four fully answer this question:

1. Utmost Good Faith — both parties, especially the insured, must disclose every material fact relevant to the risk, honestly and completely, even without being asked.
2. Insurable Interest — the insured must have a genuine financial stake in the subject matter, such that its loss would cause them real financial harm.
3. Indemnity — the insured is compensated only to the extent of the actual loss suffered, never more (applies to General Insurance, not Life Insurance).
4. Contribution — where the same risk is insured with more than one insurer, each contributes to a loss in proportion to the amount it has insured.
5. Subrogation — after fully indemnifying the insured, the insurer acquires the insured's right to recover the same loss from any responsible third party.
6. Proximate Cause — where a loss results from a chain of causes, liability is decided by the nearest, dominant cause.
7. Mitigation of Loss — the insured must take reasonable steps to minimise a loss once it occurs or is threatened.