NATURE OF INSURANCE CONTRACTS

NATURE OF INSURANCE CONTRACTS

Life is full of uncertainty, some of which end up being positive while others tend to be negative. Your business for example could be doing well today and then later in the day a riot breaks out and your assets get looted or engulfed in flames. As a measure against certain uncertainty regarding your health, your business, your car etc, insurance contracts do come handy.

In their simplest form insurance contracts are the kind in which there are provisions that a sum of money is to be provided upon happening of a given event.

CATEGORIES OF INSURANCE

There are two categories of insurance

Indemnity insurance: This kind of insurance provides an indemnity against loss, for instance a fire policy on a house or even marine policy in the case of shipping vessels. Depending on the limits of the policy, the measure of the loss is the measure of the payment.

Contingency insurance: This kind of insurance doesn’t provide indemnity rather a payment on a contingent event, an example is life policy or even personal injury, in which the sum paid is not measured by the loss but by what is stated in the policy. Basically the contract sum is paid if life ends or the limb is lost irrespective of the value of the life or the limb.

ELEMENTS OF INSURANCE

There are three elements that separate insurance from things like gambling and there are:

1. Premiums: The party insured or assured will pay premiums, the money that acts as consideration in these contracts. The insurance contract gives the assured a right to receive money or money’s worth, upon the happening of some event
2. Uncertainty: There must be either uncertainty whether or not the event will ever happen, or if the event is one which is bound to happen at some time there must be uncertainty as to the time at which it will happen
3. Insurable interest: This is the financial or monetary interest at stake or in danger if the subject matter is not insured. It is the interest a person has in the subject matter which he stands to lose in the event of its loss or destruction.

Remember insurance contracts are contracts and just like any contract the devil is in the details so do due diligence before you buy a policy or sign up for one.

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