What is Insurance and What are Essential Features of Contract of Insurance

 What is Insurance? 

       Insurance is a contract between an individual or business and a third party that provides financial protection against the loss of private property or personal injury. The primary goal of insurance is to protect against potential financial loss, particularly in the case of large expenses that may arise unexpectedly.

     In simple words, Insurance is a contract between two parties to transfer risk from the first party to the second party. It allows for protection against financial loss that may arise due to certain events.

Insurance is important for protecting your financial well-being. There are various types of insurance, Health Insurance, Life Insurance, Car Insurance, Dental Insurance, Travel Insurance, Home and property insurance, Vision Insurance, Auto insurance, Pet Insurance, etc. 

• A person or entity who buys insurance is known as an insured or policyholder. 
• Insurer means — (a) an Indian Insurance Company, or (b) a statutory body established by an Act of Parliament to carry on insurance business, or (c) an insurance co-operative society, or (d) a foreign company engaged in re-insurance business through a branch established in India.
• Insurance agent means an insurance agent who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance

Essential Features of Contract of Insurance - 

In the eye of the Law, To make a contract of insurance valid, some essential elements must be considered in its process of validity. As per the Indian Contract Act, a Contract is an agreement, enforceable by law. It is an agreement between persons which contains the offer and acceptance. The parties to the contract should be competent to enter into a contract. 

The insurance contract, like any other contract, must satisfy the usual conditions of a contract. The essentials of Insurance contracts are as follows: 

a) Agreement 

In order to create a valid Contract there must be two or more competent parties. For the formation of a valid Contract, there must be an agreement between them. Agreement means communication by the parties to one another and their intentions to create legal relationship. For a valid contract of insurance, there must be an agreement between the parties. For example,  one makes an offer or proposal, and another accepts the proposal or signifies his acceptance of a proposal. A valid contract is an agreement that creates or modifies legal relations enforceable by law and no contract is enforceable until it satisfies the essentials of the agreement.

b) Free Consent 

 Entering into a contract needs the free consent of both parties. In order to make any lawful contract, the consent of both parties must be free from any fraud or coercion. 

c) Competent Parties -

The parties in an agreement must be competent to enter into the contract. It means both parties in the insurance contract must be major, sound mind, and not disqualified by any law of the country. It makes clear that a person who is minor, lunatic, idiot, and like cannot enter into an insurance contract. The contract entered into by these will be declared void.

d) Lawful object

       To make a valid Contract, the object of the contract must be lawful. In an insurance contract, the object of the contract must be lawful as in other types of contracts. The agreement must not relate to anything which is contrary to the provision of any law or has expressly been forbidden by any law.   It must not be of such nature that if permitted, it implies injury to the person or property of others or is immoral or opposed to public policy. 

 And it must be possible to execute it. Both parties should be completely conscious. 

e) Lawful consideration

For the formation of a valid Insurance Contract, there must be lawful consideration in the Insurance Contract. The doctrine of "lawful consideration" is a contract term that refers to what is given by one party in exchange for the promises or actions of the other party. The consideration must be lawful. 

See Also....

Reinsurance (Insurance Act, 1938 Section 101A to Section 101C )

Persons Entitled to payment under Life Insurance

Meaning and definition of Premium  (Insurance Law)