Insurance Principles and Concepts
Core principles
Insurance transfers a defined risk from an insured to an insurer in exchange for premium. Insurable interest is the legal or economic stake that supports the contract; for property insurance it must exist at the time of loss. Indemnity restores the insured to approximately the pre-loss financial position, not to a better one. Actual cash value is replacement cost less depreciation; replacement cost pays to repair or replace without depreciation, subject to policy conditions.
A property policy is a contract of adhesion, is conditional, and is aleatory because performance depends on an uncertain event. Subrogation lets the insurer stand in the insured's legal shoes after paying a loss; salvage is the insurer's right to recover value from damaged property. Proximate cause is the dominant, efficient cause of loss. Concurrent causation arises when a covered and an excluded peril combine; the policy language and endorsement determine the result.
Worked example
A contractor's negligence starts a fire that destroys a $100,000 building. The insurer pays the insured, then sues the contractor in subrogation. The insured cannot also collect the same loss from the contractor and keep both payments; that would violate indemnity.
Traps
Indemnity does not automatically mean new-for-old. Insurable interest timing differs between property and life insurance. Do not treat proximate cause as a synonym for the last event. Read exclusions and anti-concurrent-causation wording before paying a combined-peril loss.