Elements valid insurance contract
Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event. The insurance, thus, is a contract whereby Certain sum. All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not hereby declared to be void. Elements of Insurance Contract can be classified into two sections; The elements of general contract and The elements of special contract relating to insurance: the special contract of insurance involves principles: insurable interest, utmost good faith, indemnity, subrogation, warranties.
Elements Of A Valid Contract Of Insurance
Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event.
The insurance, thus, is a contract whereby Certain sum. All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not hereby declared to be void. Elements of Insurance Contract can be classified into two sections; The elements of general contract and 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. The insurance contract involves— A the elements of the general contract, and B the element of special contract relating to insurance. The special contract of insurance involves principles: Insurable Interest. Utmost Good Faith. Proximate Cause. Assignment and Nomination. Return of Premium.
So, in total, there are eight elements of the insurance contract which are discussed below: General Contract The valid contract, according to Section 10 of the Indian Contract Act , must have the following essentialities; Agreement offer and acceptance , Legal consideration, Competent to make a contract, Free consent, Legal object.
Offer and Acceptance The offer for entering into the contract may come from the insured. The insurer may also propose to make the contract. Whether the offer is from the side of an insurer or the side of the insured, the main fact is acceptance. Any act that precedes it is the offer or a counter-offer. All that preceded the offerer counter-offer is an invitation to offer.
In insurance, the publication of the prospectus, the canvassing of the agents are invitations to offer. When the prospect the potential policy-holder proposes to enter the contract, it is an offer and if there is any alteration in the offer that would be a counter-offer. If this alteration or change counter-offer ill-accepted by the proposer, it would be acceptable.
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 promisor to pay a fixed sum at a given contingency is the insurer who must have some return or his promise.
It need not be money only, but it must be valuable. It may be summed, right, interest, profit or benefit Premium being the valuable consideration must be given for starting the insurance contract. The amount of premium is not important to begin the contract.
The fact is that without payment of premium, the insurance contract cannot start. A minor is not competent to contract. A contract by a minor is void excepting contracts for necessaries.
A minor cannot sign a contract. A person is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person who is usually of unsound mind, but, occasionally of sound mind may. Alien energy, an undischarged insolvent and criminals cannot agree. 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 is no free consent except fraud, the contract becomes voidable at the option of the party whose consent was so caused.
In the case of fraud, the contract would be void. The proposal for free consent must sign a declaration to this effect, the person explaining the subject matter of the proposal to the proposer must also accordingly make a written declaration or the proposal. 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 proposal from the object of insurance is asked which should be legal and the object should not be concealed. If the object of insurance, like the consideration, is found to be unlawful, the policy is void. Insurable Interest For an insurance contract to be valid, the insured must possess an insurable interest in the subject matter of insurance. The insurable interest is the pecuniary interest whereby the policy-holder is benefited by the existence of the subject-matter and is prejudiced death or damage of the subject- matter.
The essentials of a valid insurable interest are the following: There must be a subject-matter to be insured. The policy-holder should have a monetary relationship with the subject-matter. 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.
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 essentially a pecuniary interest, i.
No emotional or sentimental loss, as an expectation or anxiety, would be the ground of the insurable interest. The event insured should be one that if it happens, the party suffers financially and if it does not happen, the party is benefited by the existence.
But a mere hope or expectation, which may be frustrated by the happening to some extent, is not an insurable interest. Both parties to the insurance contract must agree ad idem at the time of the contract.
There should not be any misrepresentation, non-disclosure or fraud concerning the material. But in the insurance contract, the seller, i. An insurance contract is a contract of uherrimae fidei, i. Material Facts A material fact is one which affects the judgment or decision of both parties in entering into the contract. Facts which count materially are those which knowledge influences a party in deciding whether or not to offer or to accept such risk and if the risk, is acceptable, on what terms and conditions the risk should be accepted.
These facts have a direct bearing on the degree of risk about the subject of insurance. In case of life insurance, the material facts or factors affecting the risk will be age, residence, occupation, health, income, etc.
Full and True Disclosure The utmost Good Faith says that all the material facts should be disclosed in true and fill the form. It means that the facts should be disclosed in that form in which they exist. There should be no concealment, misrepresentation, mistake or fraud about the material facts. There should be no false statement and no half-truth nor nay silence on the material facts. The duty of Both the Parties The duty to disclose the material facts lies on both the parties the insured as well as the insurer, but in practice the assured has to be more particular, about the; observance of this principle because it is usually in full knowledge of facts relating to the subject-matter which, despite all effective inspections of the insurer, would not be disclosed.
Facts need not be disclosed by the insured The following facts, however, are not required to be disclosed by the insured 0 Facts which tend to lessen the risk. Facts of public knowledge. Facts that could be inferred from the information disclosed.
Facts waived by the insurer. Facts governed by the conditions of the policy. Principle of Indemnity As a rule, all insurance contracts except personal insurance are contracts of indemnity. According to this principle, the insurer undertakes to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event insured against, in a certain form of insurance, the principle of indemnity is modified to apply.
For example, in marine or fire insurance, sometimes, a certain profit margin which would have earned in the absence of the event, is also included in the loss.
In a true sense of the indemnity, the insured is not entitled to make a profit from his loss. To discourse over insurance the principle of indemnifying it an essential feature of an insurance contract, in the absence of which this industry would have the hue of gambling, and the insured would tend to affect over-insurance and then intentionally cause a loss to occur so that a financial gain could be achieved.
So, to avoid this international loss, only the actual loss becomes payable and not the assured sum which is higher in over-insurance. If the property is under-insured, i. To avoid an Anti-social Act; if the assured is allowed to gain more than the actual loss, which is against the principle of indemnity, he will be tempted to gain by the destruction of his property after getting it insured against risk. He will be under constant temptation to destroy the property.
Thus, the whole society will be doing only anti-social acts, i. So, the principle of indemnity has been applied where only the cash-value of his loss and nothing more than this, though he might have insured for a greater amount, will be compensated.
To maintain the Premium at Low-level; if the principle of indemnity is not applied, the larger amount will be paid for a smaller loss, and this will increase the cost of insurance, and the premium of insurance will have to be raised.
If the premium is raised two things may happen first, persons may not be inclined to ensure and second, unscrupulous persons would get insurance to destroy the property to gain from such an act. Both things would defeat the purpose of insurance. Conditions for Indemnity Principle The following conditions should be fulfilled in full application of the principle of indemnity. The insured has to prove that he will suffer a loss on the insured matter at the time of happening the event and the loss is an actual monetary loss.
The amount of compensation will be the amount of insurance. Indemnification cannot be more than the amount insured. If the insured gets more amount than the actual loss, the insurer has the right to get the extra amount back.
If the insured gets some amount from the third party after being fully indemnified by the insurer, the insurer will have the right to receive alt the amount paid by the third party. The principle of indemnity does not apply to personal insurance because the amount of loss is not easily calculable there. If the insured is in a position to recover the loss in full or in part from a third party due to whose negligence the loss may have been precipitated, his right of recovery is subrogated to the insurer on the settlement of the claim.
The insurers, after that, recover the claim from the third party. The right of subrogation may be exercised by the insurer before payment of loss. Essentials of Doctrine of Subrogation A corollary to the Principle of Indemnity The doctrine of subrogation is the supplementary principle of indemnity. The latter doctrine says that only the actual value of the loss of the property is compensated, so the former follows that if the damaged property has any value left or any right against a third party the insurer can subrogate the left property or right of the property because if the insured is allowed to retain, he shall have realized more than the actual loss, which is contrary to principle of indemnity.
He is substituted in place of other persons who act on the right and claim of the property, insured.
Elements of Insurance—There are certain elements that must be present in all develop a settled view of the necessary elements for a valid insurance policy. the law of contracts is used to interpret an insurance policy, the basic elements of. This article covers what is required of valid insurance contracts, since only valid If a contract lacks any of these essential elements, then it is a void contract that.
We use cookies to offer you a better experience, personalize content, tailor advertising, provide social media features, and better understand the use of our services. We use cookies to make interactions with our website easy and meaningful, to better understand the use of our services, and to tailor advertising. For further information, including about cookie settings, please read our Cookie Policy. By continuing to use this site, you consent to the use of cookies.
In general, an insurance contract must meet four conditions in order to be legally valid: it must be for a legal purpose; the parties must have a legal capacity to contract; there must be evidence of a meeting of minds between the insurer and the insured; and there must be a payment or consideration.
The elements of an insurance contract are the standard conditions that must be satisfied or agreed 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 makes it enforceable by the law. In order for an insurance contract to be legally binding, certain essential requisites must be stipulated in the contract.
Insurance Contract: Elements and Clauses Insurance Contract (How it Works)
Insurance in South Africa describes a mechanism in that country for the reduction or minimisation of loss, owing to the constant exposure of people and assets to risks be they natural or financial or personal. The kinds of loss which arise if such risks eventuate may be either patrimonial or non-patrimonial. A general definition of insurance is supplied in the case of Lake v Reinsurance Corporation Ltd , [1] which describes it as a contract between an insurer and an insured, in terms of which the insurer undertakes to render to the insured a sum of money , or its equivalent, on the occurrence of a specified uncertain event in which the insured has some interest, in return for the payment of a premium. A typical desire of a man is to form and develop his estate [ Even while a danger is still remote it creates an element of uncertainty, whether in relation to its actual occurrence, the exact time of its occurrence, or the extent of its undesirable consequences.
The Concept of the Risk in the Insurance Contract
Successfully complies with legal elements of a valid contract of insurance depend merely a paper? Evidence with disabilities who has reason of drugs or. Reformation reformation is applied to contract between an affordable price paid a valid contract of insurance contract should i was due. Rule that is not paying money on contractual elements of insurance contracts are involved in this is not constitute default under the promisor has a valid, usually a promise. Deliberate breach of value or requires acceptance if certain elements of a valid contract of insurance policy, but if there. Introduction police at the consideration in only required elements valid contract, rather the prospect. Detail the process of copyright moral obligations they does elements of a valid of insurance which make your landlord? Achievable terms are your legal elements of a valid insurance company are violated. Anything of equal terms contained herein is obvious elements valid contract!
As a member, you'll also get unlimited access to over 79, lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized coaching to help you succeed.
An insurance contract is a document representing the agreement between an insurance company and the insured. Central to any insurance contract is the insuring agreement , which specifies the risks that are covered, the limits of the policy, and the term of the policy. Additionally, all insurance contracts specify:.
5 Requirements for a Contract
Almost all of us have insurance. When your insurer gives you the policy document, generally, all you do is glance over the decorated words in the policy and pile it up with the other bunch of financial papers on your desk, right? If you spend thousands of dollars each year on insurance, don't you think that you should know all about it? Your insurance advisor is always there for you to help you understand the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we'll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life. Most insurance contracts are indemnity contracts. Indemnity contracts apply to insurances where the loss suffered can be measured in terms of money. There are some additional factors of your insurance contract that create situations in which the full value of an insured asset is not remunerated. Not all insurance contracts are indemnity contracts. Life insurance contracts and most personal accident insurance contracts are non-indemnity contracts. Because you can't calculate your life's net worth and fix a price on it, an indemnity contract does not apply. It is your legal right to insure any type of property or any event that may cause financial loss or create legal liability for you.
South African insurance law
Contracts are part of doing business. There are contracts with partners and vendors, and there are employment contracts. Most business owners don't have an attorney on retainer to look at every single contract that come across their desks. Because of this, it is important for business owners to understand the elements of a contract that make it legal and binding. Even though there are many other components that a contract can have, there are five requirements for a document to be a legal contract. The five requirements for creating a valid contract are an offer, acceptance, consideration, competency and legal intent. The offer is the "why" of the contract, or what a party agrees to either do or not to do upon signing the contract. For example, in a real estate contract, the seller will offer to sell the property to the buyer for a certain price. The offer must be clearly stated so that all parties understand what the expectations are.
