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The basic Principles of Insurance  There are several principles that govern what is insurance and what isn't. These are the basic principles of insurance. First, insurance is a repayment of a random loss. The timing or occurrence of the loss must be uncertain. For example, you can't know your house is going to be destroyed in three weeks by a demolotion team and still get home owner's insurance. Overall losses by the insurance company must be somewhat predictable. In other words the insurance company needs to be able to rely on the law of averages. By pooling in a number of insured, the insurance company can be sure that a given percentage of the insured will never place claims allowing the company to make a profit on the overall business. They must also be able to understand what the costs will be for benefits over a large number of policies. To be able to fully service major claims, small claims are not covered. This is what the deductable is for. Only damage or loss over the amount of the deductable is covered by the insurance policy. The loss cannot be so large as to put the insurance company out of business.

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