The Five Principles of Insurance Contracts: When You Need a Lawyer

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Insurance contracts have to adhere to state and federal regulations to be valid. However, you may not know or have information on what these regulations are. You end up signing an insurance contract with policies you don’t understand, and they only come back to haunt you when making an insurance claim.

The Five Principles of Insurance Contracts: When You Need a Lawyer

When drafting insurance contracts, there are several principles that an insurance contract must adhere to. This article highlights the top five principles you must know to help decide if you require a loss transfer attorney.

1. The Principle of Insurable Interest

This principle states that the subject of the insurance contract must give financial gain by being the policyholder’s insurer and that it would lead to a financial loss if it gets damaged or stolen. For the contract to be valid, the insured must have something in their interest.

2. The Principle of Utmost Good Faith

This principle states that the insured and the insurer must both act in good faith towards each other. The insurer should inform the policyholder of all legal information and the terms and conditions of the contract. The insurer should also be truthful and honest in the event of an accident requiring payment from the insurance company.

It is a simple principle often abused by the insurance company and the policyholder. If your insurance company gives you false facts about your policy that cause you financial loss, you are eligible to contact a loss transfer attorney.

This principle also warns insurance policyholders looking to scam the insurance company of free money. You are obligated to be truthful about events that led to the loss or damage of property.

3. The Principle of Indemnity

It states that the insurer is obligated to return you to the position you were in before the accident that led to loss or damage. The insurance company agrees to compensate you for your loss up to the agreed amount.

The amount paid should be directly proportional to the amount of loss incurred within the amount agreed in the contract.

4. The Principle of Contribution

This principle applies when you have an insurance policy for the same product but with different insurance companies. It means the insured is entitled to claim compensation from all the insurers involved for the lost or damaged subject. The insurers will pay the compensation amount due to the insured in proportion to the agreed-upon contract. If one or both insurers are unwilling to pay their portion of the money owed, you can contact a loss transfer attorney.

5. The Principle of Loss Minimization

This principle affects the insured more than the insurer. It states that the insured is responsible for avoiding or reducing losses incurred on the insured property. You are not entitled to compensation for your carelessness, but you should also not be unfairly judged under this principle. You can contact a loss transfer attorney for help if you feel unjustly judged.


The above principles guide the insured and the insurer in handling all matters related to an insurance policy. The above principles should be the basis for all insurance contracts. You should use the above principles to argue your case if you feel cheated on your compensation amount. You can always contact a loss transfer attorney to help you argue your case.

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