Many uncertain events can occur in one person’s life and cause damage to his life and property. This needs to protect oneself from the losses that are incurred from such events. An insurance contract is essentially a contract between two parties and there one of them is called the insurer and the other parties are insured. Section 2(8) of the insurance act, of 1938, defines the insurance company as many of the company associations or partnerships that can be wound under the companies act, of 1956.

Meaning of the coverage contract

• In this type of insurance contract, the insurer promises the insured party that he will save or identify him from the losses that are caused by the particular contingent event, on the payment of the amount that is called the premium.

• The insurer usually refers to the insurance company that sells the insurance and the insurance or the policyholder is the person who buys and pays for the premium.

• In a contract of the insurance, the insurer or the insurance company advertises the insurance policy, when they invite the offer.

• Then, seeing the invitation in the offer the insured makes an offer to the insurer. When the insurer accepts, it turns into an insurance contract.

Purpose of the insurance

The following of the two main purposes of the insurance contract 

Protection against the uncertain events 

The main purpose of the insurance contract is to make the insured person secure and financially protected from certain and uncertain contingencies that would have caused a huge financial burden.

Better management of the finances 

Many people tend to make poor financial decisions that could not potentially leave without any support when faced with an unfortunate situation. By subscribing to the insurance policy, the insured would be able to make better financial decisions.

Types of the insurance

Two types of insurance contracts are based on what they cover, which are the life of the insurance and in general insurance.

Life insurance 

Life insurance covers the life of the insured. On the death of the insured, then the insurer would pay the sum of the money to the nominee or the beneficiary contract. This provides the insured with the assurance that the family will be financially stable even upon his demise.

General insurance 

General insurance on the other hand, that everything in life such as health, house, motor vehicles, fire, travel, etc.., provides financial assurance against the losses incurred from events other than the death of the insured.

Principles of the characteristics of the insurance contract

The following of the principle and characteristics of the insurance contract 

Essentials of the valid contract

An insurance contract is just like any of the other contracts and hence it has the essentials of a valid agreement as per section 10 of the Indian contract act, of 1872.

• Offer and the acceptance
• Competency parties
• Free consent
• Lawful consideration
• Lawful object

Indemnity contract

An indemnity contract is the main purpose of the contract. Then section 124 of the Indian contract act 1872 has defined the indemnity contract as the agreement between the two parties where one party promises to save the other from the loss that would occur to them due to the contract of the promised himself or any other person.

Contract of the adhesion

Insurance policies that normally standardized and fixed. Thus, as the terms of an insurance policy and are formed by the consent of the insured, the insurer must explain the clauses in the insurance policy to the insured.

The insurer party is at an advantage as the insured does not get to negotiate on the terms of the contract. And the insured must understand all these terms well and choose the policy that suits his interests best.

Insurable interest

Insurable interest is one of the requite elements in the insurance contract, and that is the thing that is insurable only if the insured will face pecuniary losses when it is destroyed. Thus, the insured must have the actual financial interest in the subject that matters of the insurance in the contract.

Principle of the contribution

In some of the instances, an insured may subscribe to multiple of insurance policies in the respect of the same in subject that matters and it is forbidden by the law, it is also called double or multiple insurances. In this case, the insured cannot make more than one claim for the same loss to make a profit.

Reinsurance

In certain situations, the insurer that might to get the insured the property, that is reinsured by the other insurer, if they fear that an insurance claim above his capacity may arise. It is also called insurance.   

Principle of the loss minimization

According to the principle, the insured must take the necessary steps, like any reasonable prudent man, is taking care of the subjects that matter in the insurance contract, so the financial losses to the subject that matters and that are reduced as much as possible.

Principles of the proximate causes

In some of the instances, an accident may be caused by multiple causes. And in such cases, it is the nearest or the most proximate cause that must be taken into the account. The insurer would pay only the nearest cause.

Issuing the policy

After the premium is deposited, the temporary cover note of the insurance policy will be issued, and after the period that expires, a permanent cover note of the insurance.

Conclusive verdict

As the insurance contracts are standardized, the formulation of the insurance contracts does not go through a phase of negotiation. On observing the formation of the insurance, contracts, and that finds the insurance policies by their nature are the invitations to offer and the real offeror who insured.