The Characteristics of Insurance Contracts

The Characteristics of Insurance Contracts

Legal Aspects

Insurance contracts, in all countries, are subject not only to the same basic law that governs all types of contracts, but also to some legal principles that have been developed to handle the legal problems associated with insurance and summarized in Table

In order for a contract to be legally valid there must be (1) an agreement between the two parties (usually refer to "offer and acceptance"), (2) a valuable consideration, and (3) legal capacity and purpose. Beyond the necessary contractual conditions, certain elements are peculiar to the insurance policy. Generally the policy is unilateral and only the insurer is obligated to act. It is also a conditional and aleatory contract.

As a contract of "utmost good faith," (uberrimae fidei) a certain degree of honesty is presumed from both parties. This principle imposes a higher standard of honesty on the two parties than is usually expected in ordinary commercial contracts. To avoid a contract, a warranty (a statement contained in the contract and which requires that a particular condition exists) must be false, a representation (a statement made by the insured to the insurer on which the latter relies to price the contract) must be false and materially important, and concealment made with intent to deceive (the insured has an obligation to inform the insurer about facts that may be materially important).

Legal Aspects of an Insurance Contract-Table1

A Valid Contract:                             - Legal purpose

                                                         - Legal capacity

                                                         - Obligations

An Insurance Contract:                    - Personal contract

                                                          - Unilateral contract

                                                          - Conditional contract

                                                          - Aleatory ( Contingent) contract

                                                          - Contract of "utmost good faith"

Standardization and Structure of Contracts

The conditions of an insurance contract are epitomized in a composed report called the insurance strategy. Arrangement structures change in multifaceted nature relying on the kind of insurance inclusion however a specific level of institutionalization exists and these benchmarks are fundamentally the same as starting with one nation then onto the next. Additionally, a specific level of consistency exists and is fundamental in the introduction (the structure) of insurance approaches (Table 8.3). 

The wording utilized is curious to insurance however the announcements, protecting understanding, definitions, avoidances, and conditions are the basic pieces of all insurance arrangements. Notwithstanding the essential approach structure, an insurance arrangement oftentimes contains a few connected structures, riders, or supports altering the inclusion.

Typical Structure of an Insurance Contract- Table-2

Declaration:                      Identification of the insured and coverage.

Insuring Agreements:       Characteristics of coverages and agreement

                                           between the insured and the insurer.

Definitions:                      Definition of all important words ( events, perils,

                                          persons, location, losses, time period).

Exclusions:                       Limits of the coverage and identification of

                                           perils, people, property or time not covered.

Conditions:                      Rights and obligations of the insured and

                                          the insurer under the contract.