INSURANCE CONTRACT

 Inusrance 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 insure a fixed amount of money on the happenings of a certain events . 

Since insurance is a contract , certain sections of Indian Contract Act are applicable.

Section 10 of this act says ,"All agreements are contracts if they are made by free consent of the parties , competent to contract , for a lawful consideration and with a lawful objects and which are not hereby declared to be void " .

Characteristics of a valid contract:

(a) Offer and acceptance = Under an insurance contract a proposal form is an offer from the side of the insured and when the other party i.e , the insurer signifies his willingness to accept it , the offer is said to have been accepted . Thus , submission of the proposal form alongwith the premium is an offer and dispatching of the acceptance letter, is the acceptance from the insurer.

(b) Competency of the parties = Another essential characteristic of a valid contract as that the parties to the agreement must be competent to contract when he has attained the age of majority as prescribed in the law , and he is of sound mind and must not have been disqualified by the competent court of law to enter into a  contract .

(c) Free consent = Parties entering into the contract should enter into it  their free consent . The consent will be free when it is not caused by: coercion , undue influence , fraud , misrepresentation , mistake . Under insurance contract both the parties must know the nature of risk , if the consent is not free , the other party has the option to reject the contract .

(d) Legal object= In order to make a valid contract , the object of the agreement should be lawful . An object that is :(i) not forbidden by law (ii) is not immoral or (iii) opposed to public policy (iv) which does not defeat the provisions of any law . 

(e) Legal consideration = For every contract there must be a legal consideration. However , in an insurance contract the premium to be paid by the insured is a consideration and to idemnify on the happening of an event is the consideration from the insurer ' s side .

Principles of insurance contract:

(a) Utmost Good Faith= It is the important principle which applies to all forms of insurance . The fundamental principle is that both the parties in an insurance contract should act in good faith towards each other , they must provide clear and concise information related to the terms and conditions of the contract . There should not be any misrepresentation , non- disclosure or fraud concerning the material fact . 

(b)Principle of proximate cause = This is also called the principle of 'causa proxima' or the nearest cause. This principle applies when the loss is the result of two or more causes . The insurance company will find the nearest cause of loss to the property . If the proximate cause is the one in which the property is insured , then the company must pay compensation .

(c) Principle of insurable interest = This principle say that the individual must have an insurable interest in the subject matter . Insurable interest on the subject matter for which the individual enters the insurance contract must provide some financial gain to the insured and also lead to a financial loss if there is any damage , destruction or loss .

(d) Principle of Idemnity = This  principle says that insurance is done only for the coverage of the loss , hence the insured should not make any profit  from the insurance contract . The purpose of the idemnity principle is to set back the loss occured . Principle of idemnity is observed strictly for property insurance and not applicable for the life insurance contract .

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