Principles of Insurance
Core principles
Insurance rests on a handful of legal principles that decide whether a claim is paid and how much. Insurable interest requires the policyholder to benefit from the subject matter's survival or suffer from its loss; it must exist at inception for property and at inception (or as specified) for life cover. Utmost good faith obliges both parties to disclose material facts fairly presented; the modern remedy is proportionate, not automatic avoidance. Indemnity means the insured is restored to their pre-loss financial position, no better - this governs property and liability but not life or personal accident, which are benefit policies paying the sum insured.
Supporting doctrines
Subrogation flows from indemnity: after paying, the insurer inherits the insured's right to recover from the third party responsible, but never more than it paid and never against its own insured. Contribution applies where two or more indemnity policies cover the same loss at the same level - each shares rateably, and the insured cannot profit. Proximate cause asks which dominant, effective cause triggered the loss, ignoring remote causes; excluded perils only defeat a claim if they are the proximate cause.
Traps
Questions blur insurable interest timing, treat contribution as applying to life policies, or confuse subrogation (against third parties) with salvage (insurer's right to the damaged property). Watch for 'average' clauses reducing payouts for underinsurance, and for the difference between a warranty (strict condition) and a representation.
Rule of thumb
Indemnity policies: pay actual loss, cap at sum insured, then apply subrogation and contribution. Benefit policies: pay the agreed sum, no subrogation or contribution.