Nature of Insurance contract

An insurance contract has the following attributes:

Entirety: All the terms and conditions are to be mentioned explicitly in the policy document
Personal: The contract follows the person insured, rather than property
Unilateral: After the insured pays the premium, the insurer is under the obligation to pay the claim amount when the situation arises except on the ground of fraud.
Aleatory: The amounts exchanged by the insured and the insurer are unequal and depends upon uncertain future events
Uberrimae fidei: It requires both Parties of the insurance contract to deal in good faith. In Particular, it imparts on the insured a duty to disclose all material facts which relate to the risk to be covered

Essentials of Insurance Contract

The following are the essentials of an insurance contract:

Written Agreement

Insurance is a written agreement between the insurer and the insured wherein the insured makes an offer, and the insurer accepts his offer. Thus, the filling up of a proposal form by the proposer is an offer and the notice of acceptance of the proposal form by the insurance company is an acceptance of insurance. So, insurance agreement must be in writing.

Consideration

Under insurance contract, the insured takes over a particular risk of the insured for a consideration called premium. The insurer promises to pay to the insured or his nominee a certain sum on the happening of an uncertain event.

Competency

A proposer must be competent to enter into contract. If the insured is of sound mind and has attained the age of majority, he is said to be competent. An insurance policy taken by a legal guardian on a minor's life is a valid contract.

Lawful Object

The object of insurance must be lawful and should not be illegal, immoral or against the interest of the public.

Mutual Faith

There should be mutual faith between the insured and the insurer. The insured should disclose all the possibilities of losses in his proposal form. He should not misrepresent to the insurer and should pay his premium in time. The insurer should pay the insured the assured amount at the time of loss without causing unnecessary hardship.

Certain

The agreement between the insured and the insurer should not be vague, loose and uncertain. The terms and conditions must be clearly understood by both.

Possibility of Performance

On insurance, the agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.

Contract of subrogation

The doctrine of subrogation is applicable in the case of general insurance. When the insured is compensated for the loss caused by the damage of the property insured by him, the right of ownership of such property passes on the insurer.