What is Insurance?
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.[1] It can be described as a social device to reduce or eliminate risks to life and property. There are various types of Insurance Contracts such as- Life Insurance, Health Insurance, Car Insurance, Education Insurance, Home Insurance etcetera.
Elements of an Insurance Contract
The concept of Insurance rises from the Law of Contracts. Thus it incorporates in it the essential elements of contracts listed in Section 10 of the Indian Contract Act, 1872. [2]
The elements of an insurance contract are the standard conditions that must be satisfing or agree upon by both parties of the contract. In terms of Insurance, these are the fundamental conditions of the insurance contract that bind both parties, validate the policy, and make it enforceable by the law.[3]
1. Utmost Good Faith
The insurer (the company providing Insurance) and the insured (the policyholder) should provide clear and concise information to each other at the time of the formation of the contract. The parties should disclose all relevant facts to the 54ewrz Any kind of misrepresentation or falsity by any party may make the insurance contract void.
2. Insurable Interest
The subject matter of Insurance must be of interest to the insured in the manner that any gain or loss will directly affect the insured. This is necessary to ensure that any frivolous property cannot be secure with which the owner has no link and is only use to claim benefit.
3. Indemnity
The insurer compensates for the loss suffered by the insured due to the occurrence of an uncertain event. The insurance company pays for the incurred losses or the amount agreed in the contract, whichever is less. This principle is also name as the No profit for Insure Principle.
4. Proximate Cause
When one buys insurance policies, one goes through a process where one selects which instances one and one’s property will be cover for and which ones they will not. The loss of insure property can be cause by more than one incident even in succession to each other. Property may be insure against some but not all causes of loss. If the proximate cause is one in which the property is insure, then the insurer must pay compensation. If it is not a cause the property is insure against, then the insurer doesn’t have to pay.
5. Contribution
This principle is applicable when an insure has insured his property with more than one insurance company. All the insurance companies contribute to the indemnity suffered by the insured in the proportion to which the insured has applied for insurance. This is to ensure that the insured does not profit from the insurance contract by claiming indemnity from all insurance companies. The insurer generally adopts this if one is in a financially weak condition.
6. Subrogation
It means the substitution of the insurer in the place of the insured to claim from the third person for a loss covered by insurance. This is generally use in fire and marine insurance after paying the insure; the insurers can auction the debris and extract money from the remains. This Principle strongly supports the Principle of Indemnity.
7. Mitigation
It is the responsibility is bestowed upon the insured to take all measures possible to minimize the loss on the property as far as possible when the incident takes place.
Conclusion
The above-written principles are present in all insurance contracts, in some way or the other. These are some of the fundamental aspects of an insurance agreement. If anyone of the pointers listed above is not present, the contract cannot be termed as an insurance contract. They allow both the party to be at equal footing and not unduly benefit from each other.
References:
[1] https://www.investopedia.com/terms/i/insurance.asp
[2] Section 10- What agreements are contracts.—All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
[3] https://www.insuranceopedia.com/definition/1679/elements-of-an-insurance-contract
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