The principles of insurance are as follows :

(1) Principle of utmost good faith : 
An Insurance contract is a contract of good faith. Both parties to the contract are bound to disclose all material facts which are likely to affect the acceptance of the proposal by the insurance company. It is known as a contract Uberrimae fidie , i.e a contract requiring absolute good faith and the disclosure of all material facts.

For e.g: The insured is a cancer patient does not disclose this material fact in his proposal form. If the insured dies of Cancer, the insurance company is not liable to pay the insurance money.

(ii) Insurable Interest: The insured must have an insurable interest in the subject matter of insurance. Insurable interest means some pecuniary interest in the subject matter of the insurance contract. The insured must have an interest in the preservation of the thing or life insured.
For example, if a person has taken the loan against the security of a factory premises then the lender can take fire insurance policy of that factory without being the owner of the factory because he has financial interest in the factory premises.

(iii) Indemnity According to it, the insurer undertakes to put the insured in the same position that he occupied immediately before the loss due to happening of the event insured against. The principle of indemnity is not applicable to life insurance.
For example, a person insured a car for 2.5 lakh against damage on an accident case. Due to accident he suffered a loss of 1.5 lakh, then the insurance company will compensate him 1.5 lakh only not the policy amount i.e., 2.5 lakh as the purpose behind it is to compensate not to make profit.

(5) Principle of proximate cause :  
The proximate cost means the direct , the most effective cause of which the loss is the natural consequence. When the loss is the result of two or more causes, the most proximate cause of the mishap should be taken into consideration. The insurance undertakes to compensate the insured for the loss caused to him or her due to damage of property insured.  

For example : Sugar send by Ship insured against sea hazards. Rats made hole by cutting the pipe of the toilet. Sea water entered through the hole and the sugar was destroyed. In this case the nearest cause of the loss of sugar is the seawater, a risk which was insured and the insurance company will be liable for the risk. If the rats  would have damaged the sugar directly insurance company would not have been liable for the risk.