feature of insurance contract
Answers
Insurance Contract is an agreement between Insured and Insurer enforceable by law. Here Insurer promises to pay sum assured on occurrence of an event like death. In exchange insured promises to pay regular premium.
Insurance Contract Terms and Conditions
1. Offer and Acceptance
2. Consideration
3. Legal Purpose
4. Competent Parties
Features of Insurance Contract
1. Aleatory
2. Adhesion
3. Unilateral
4. Personal Contract
5. Conditional
6. Valued or Indemnity Contract
7. Utmost Good Faith
8. Material Facts:
Answer:
Features of Insurance Contract
Given below are the few features of Insurance contract, these features are unique:-
1. Aleatory
Insurance contracts are Aleatory as promise comes into picture only on occurrence of event. This occurrence of event is based on probability and occurrence of event is not controlled by any party.
2. Adhesion
Here contract is prepared by insurer and insured accepts given terms and conditions without any negotiation.
3. Unilateral
Here Insurer makes any enforceable promise. Insured does not make any promise but bound by the terms and conditions of policy where contract can be lapsed if renewal premiums are not paid.
4. Personal Contract
Life insurance is a personal contract or personal agreement between the insurer and the insured. The owner of the policy has no bearing on the risk the insurer has assumed. For this reason, people who buy life insurance policies are called policy owners rather than policyholders. Policy owners actually own their policies and can give them away if they wish. This transfer of ownership is known as assignment. To assign a policy, a policy owner simply notifies the insurer in writing. The company will then accept the validity of the transfer without question. The new owner is granted all of the rights of policy ownership.
5. Conditional
An insurance contract is conditional. This means that the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract. If the event does not materialize, no benefits are paid. Furthermore, the insurer’s obligations under the contract are conditioned on the performance of certain acts by the insured or the beneficiary. For example, the timely payment of premiums is a condition for keeping the contract in force. If premiums are not paid, the company is relieved of its obligation to pay a death benefit.
6. Valued or Indemnity Contract:
An insurance contract is either a valued contract or an indemnity contract. A valued contract pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts. If an individual acquires a life insurance policy insuring her life for Rs 500,000, that is the amount payable at death. There is no attempt to value actual financial loss upon a person’s death.
An indemnity contract, however, is one that pays an amount equal to the loss. Contracts of indemnity attempt to return the insured to their original financial position. Fire and health insurance policies are examples of indemnity contracts. An insured that owns a Rs. 500000 fire insurance policy and suffers a Rs. 50,000 loss due to fire will be able to collect up to Rs. 50,000, not Rs. 500,000.
7. Utmost Good Faith:
Insurance is a contract of utmost good faith. This means both the policy owner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy based largely on the insurer and agent’s explanation of the policy’s features, benefits, and advantages. Insurance applicants are required to make a full, fair and honest disclosure of the risk to the agent and insurer.
8. Material Facts:
All facts which need can affect the occurrence of risk must be declared. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. Facts are presumed to be material because they affect the insurer’s decision to accept or reject an applicant.
In most cases, life insurers have only a limited period of time to uncover false warranties, misrepresentations, or concealment. After that time period passes (normally two years from policy issue), the contract cannot be voided or revoked for these reasons under section 45 of Insurance Act
9. Insurable Interest:
Another element of a valid insurance contract is insurable interest. Insurable interest is a component of legal purpose. Insurable interest is not defined but can be interpreted by the loss to the proposer. Examples of Insurable Interest: Parents on children but children have no interest on parents, Spouse on each other but husband cannot have an insurance on wife unless husband is adequately insured, Employer on employee, Creditors on debtors. Insurable interest should be there at initiation of contact and not at the time of occurrence of event.
Lastly Insurance Contract need to be seen from the perspective of Moral Hazard and underwriters need to evaluate each case with an objective of Moral Hazard.