Two Principals of Insurance: 

1. Utmost good faith: As contract of insurance is based on mutual trust and confidence. It means that each party to the insurance contract must disclose all the information which is likely to influence the other party’s decision to enter into contract. The proposer knows better the facts relating to the risk. Therefore, he must disclose all material facts known to him. For example, in a contract of life insurance, the proposer must disclose his correct age, any chronic illness, etc. If he misrepresents or conceals certain facts, the insurance company can cancel the contract of insurance. 

2. Insurable Interest: A person must have interest in the non-occurrence of the event being insured. He should stand in a position that he would benefit from the existence of the subject matter and would suffer a loss from its destruction or damage. For example, a person has interest in his life and property. But a person has no interest in the life or property of a stranger. This principle is based on the logic that no one should be allowed to make profit out of insurance.