Insurance Contract

Insurance Contract: Elements and Clauses Insurance Contract-1

Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called decorations, to pay the other party called ensured a fixed quantum of plutocrat on the passing of a certain event.

The insurance, thus, is a contract whereby

  1. Certain sum. called premium, is charged in consideration
  2. Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium
  3. The payment will be made in a certain definite sum. I.e., I lose or the policy amount whichever may be, and
  4. The payment is made only upon a contingency

Since Insurance is a contract, certain sections of the Contract Act are applicable.

All agreements are contracts if they're made by the free concurrence of the parties, competent to contract, for a legal consideration and with a legal object and which aren't hereby declared to be void.

rudiments of Insurance Contract can be classified into two sections;

  1. The elements of general contract and
  2. The elements of special contract relating to insurance: the special contract of insurance involves principles: insurable interest, utmost good faith, indemnity, subrogation, warranties. Proximate cause, assignment, and nomination, the return of premium.

Elements of Insurance Contract

This Act says that all agreements are the contract if they're made by the free concurrence of the parties, competent to contract, for a legal consideration and with a legal object and which aren't at this moment declared to be void ”.

The insurance contract involves( A) the rudiments of the general contract, and( B) the element of special contract relating to insurance.

The special contract of insurance involves principles

  1. Insurable Interest.
  2. Utmost Good Faith.
  3. Indemnity.
  4. Subrogation.
  5. Warranties.
  6. Proximate Cause.
  7. Assignment and Nomination.
  8. Return of Premium.

So, in total, there are eight rudiments of the insurance contract which are bandied below

General Contract

The valid contract, according to Section 10 of the Indian Contract Act 1872, must have the following essentialities;

  1. Agreement (offer and acceptance),
  2. Legal consideration,
  3. Competent to make a contract,
  4. Free consent,
  5. Legal object.

Offer and Acceptance

The offer for entering into the contract may come from the ensured.

The insurer may also propose to make the contract. Whether the offer is from the side of an insurer or the side of the ensured, the main fact is acceptance. Any act that precedes it's the offer or acounter-offer. All that anteceded the offerercounter-offer is an assignation to offer.

In insurance, the publication of the prospectus, the canvassing of the agents are assignations to offer.

When the prospect( the implicit policy- holder) proposes to enter the contract, it's an offer and if there's any revision in the offer that would be acounter-offer.

still, it would be respectable, If this revision or change(counter-offer) ill- accepted by the proposer.

In the absence of a counter-offer, the acceptance of the offer will be an acceptance by the insurer. At the moment, the notice of acceptance is given to another party; it would be a valid acceptance.

Legal Consideration

The pledge to pay a fixed sum at a given contingency is the insurer who must have some return or his pledge. It need not be plutocrat only, but it must be precious.

It may be added, right, interest, profit or benefit Premium being the precious consideration must be given for starting the insurance contract.

The quantum of decoration isn't important to begin the contract. The fact is that without payment of decoration, the insurance contract can not start.

Competent to make the contract

Every person is competent to contract;

  1. Who is off’ is an age of majority according to the law,
  2. Who is of sound mind, and
  3. Who is not disqualified from contracting by any law to which he is subject?

A minor isn't competent to contract. A contract by a minor is void excepting contracts for necessities. A minor can not subscribe a contract.

A person is said to be of sound mind to make a contract if, at the time when he makes it, he's able of understanding it and of forming a rational judgment as to its effect upon his interests.

A person who's generally of unsound mind, but, sometimes of sound mind may. make a contract when he's of sound mind. Alien energy, an undischarged insolvent and culprits can not agree. A contract made by an unskillful party/ parties will be void.

Free Consent

Parties entering into the contract should enter into it by their free consent.

The consent will be free when it is not caused by—

(1) coercion,
(2) undue influence,
(3) fraud, or
(4) misrepresentation, or
(5) mistake.

When there's no free concurrence except fraud, the contract becomes voidable at the option of the party whose concurrence was so caused. In the case of fraud, the contract would be void.

The offer for free concurrence must subscribe a protestation to this effect, the person explaining the subject matter of the offer to the proposer must also consequently make a written protestation or the offer.

Legal Object

To make a valid contract, the object of the agreement should be lawful. An object that is,

(i) not forbidden by law or
(ii) is not immoral, or
(iii) opposed to public policy, or
(iv) which does not defeat the provisions of any law, is lawful.

In the offer from the object of insurance is asked which should be legal and the object shouldn't beconcealed.However, like the consideration, is set up to be unlawful, If the object of insurance.

Insurable Interest

For an insurance contract to be valid, the ensured must retain an insurable interest in the subject matter of insurance.

The insurable interest is the financial interest whereby the policy- holder is served by the actuality of the subject- matter and is prejudiced death or damage of the subject- matter. The rudiments of a valid insurable interest are the following

  1. There must be a subject-matter to be insured.
  2. The policy-holder should have a monetary relationship with the subject-matter.
  3. The relationship between the policy-holders and the subject-matter should be recognized by law. In other words, there should not be any illegal relationship between the policy-holder and the subject-matter to be insured.
  4. The financial relationship between the policy-holder and subject-matter should be such that the policy-holder is economically benefited by the survival or existence of the subject-matter and or will suffer economic loss at the death or existence of the subject matter.

The subject- matter is life in the life insurance, property, and goods in property insurance, liability, and adventure in general insurance.

Insurable interest is basically a financial interest, i.e., the loss caused by fire passing of the ensured threat must be able of fiscal valuation.

No emotional or novelettish loss, as an anticipation or anxiety, would be the ground of the insurable interest. The event ensured should be one that if it happens, the party suffers financially and if it doesn't be, the party is served by the actuality.

But a bare stopgap or anticipation, which may be frustrated by the passing to some extent, isn't an insurable interest.

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