A person’s life may be plagued by several unforeseen occurrences that may endanger his life and possessions. This makes it necessary to take precautions against suffering losses as a result of such occurrences. The idea of insurance is founded on this.
Any company, organisation, or partnership that can be dissolved under the Companies Act of 1956 or the Indian Partnership Act of 1932 is referred to as a “Insurance Company” under Section 2(8) of the Insurance Act of 1938. An “insurer” is defined as any individual, group of individuals or corporate organisation that conducts an insurance business under Section 2(9) of the Act.
What is an Insurance Contract?
A basic insurance contract is a legal agreement between two parties, one of whom is referred to as the “insurer” and the other as the “insured.” In this kind of agreement, the insurer guarantees the insured party that, in exchange for payment of a sum of money known as the “premium,” he would protect or hold him harmless against damages brought on by a certain contingent occurrence. A typical definition of an insurer is an insurance provider, and a policyholder is an individual who purchases insurance by paying a premium. The insurer or insurance business promotes the insurance policy via an insurance contract, which is an invitation to offer. The insured then approach the insurer with an offer after viewing the invitation to offer. It becomes an insurance contract after the insurer agrees.
Reasons to make an Insurance Contracts
The two primary goals of insurance contracts are as follows:
- Protection from unforeseen occurrences: The basic goal of an insurance contract is to provide the insured with security and financial protection from unforeseen events that may result in a significant financial burden.
- Better money management: Many people have the propensity to make bad financial choices that can leave them stranded in the event of an adverse circumstance. The insured would be able to make better financial judgements by purchasing an insurance policy.
Elements of Insurance Contracts
The Four elements of an Insurance Contract are:
- Declaration Page: Usually, the first page of an insurance policy is this one. The insured, hazards or goods covered, insurance limits, and policy duration are all specified (i.e. time the policy is in force). For instance, the Declarations Page of an automotive policy will list the specifics of the car covered (such as the make, model, and VIN number), the name of the person insured, the premium amount, and the deductible (the amount you must pay for a claim before an insurer pays its portion of a covered (claim).
- Insuring Agreement: This lists what is covered as well as a summary of the insurance company’s main guarantees. The insurer commits to a number of actions under the Insuring Agreement, including paying damages for covered dangers, offering particular services, or committing to defend the insured in a liability litigation. There are two fundamental types of insurance contracts:
i) Only the hazards expressly mentioned in the policy are covered under named-perils coverage. The risk is not covered if it is not statedii) All damages are covered with all-risk insurance, excluding those that are expressly excluded. The loss is covered if it is not exempt. Most life insurance plans are full-risk plans.
- Exclusions: Exclusions void the Insuring Agreement’s coverage. There are three main categories of Exclusions:
i) Omitted risks or sources of loss
ii) Absent losses
iii) Excluded assets
Floods, earthquakes, and radioactive radiation are some instances of risks that are not covered by a homeowners policy. Wear-and-tear damage is a common illustration of an excluded loss under an automotive policy. Personal property like a car, a cat, or an aeroplane is an example of excluded property under a homeowners policy.
- Conditions: Conditions are clauses included to the policy that restrict or qualify the insurer’s obligation to pay or perform. The insurer may reject the claim if the criteria of the insurance are not satisfied. Common policy requirements include the need to submit proof of loss to the insurer, to safeguard property after a loss, and to cooperate with the insurer during an investigation or the defence of a liability claim.
Essentials of an Insurance Contracts
There are several clauses of insurance contracts that are commonly included in all insurance contracts.
- Proposal and Acceptance: Obtaining the proposal form from a certain insurance provider is the first step in applying for insurance. You send the application to the business after providing the necessary information (sometimes with a premium check). Your offer is this. Acceptance occurs when the insurance provider decides to cover you. Your insurer could accept your offer in specific circumstances if you agree to modify the conditions.
- Consideration: This is the premium or the amount you will have to pay in the future to your insurance provider. Consideration for insurers also includes any compensation you get in the event that you make an insurance claim. This implies that each contracting party must provide something valuable to the partnership.
- Legal Competence: To get into a contract with your insurer, you must be of legal age. You might not be able to make contracts if you’re juvenile or mentally sick, for instance. Similar to banks, insurers are regarded as competent if they have a licence under the laws currently in effect.
- Legal Objective: Your agreement is void if its goal is to promote criminal behaviour.
Insurance contract development does not involve any negotiation because insurance contracts are standardised. The insured is the true offeror when it comes to insurance contracts since insurance policies are by their very nature invitations to offer. Contracts of indemnification and aleatory contracts are examples of qualities found in insurance contracts that make them stand alone as contracts.