Theories of insurance

Theories of insurance explain how insurance works and why it exists. The primary theories include the Risk Theory, which focuses on pooling resources to protect against financial loss, and the Indemnity Theory, which ensures that insured parties are compensated for losses without profiting from them. Additionally, the Principle of Utmost Good Faith emphasizes honesty between insurers and policyholders. Lastly, the Loss Mitigation Theory encourages reducing potential losses. Together, these theories help guide how insurance operates, balancing risk, fairness, and support during unforeseen events.