Definition of Insurance
Man is exposed to
losses. For instance, the time of the death of a person is not certain, and in
the case of his premature death a man’s dependents may find themselves deprived
of all means of existence. Similarly, the property of a person is open to all
risks of its being destroyed by fire. Every prudent man will carefully consider
how best he can prevent such risks or minimize or provide against its effects.
It is difficult for an individual or even a large business enterprise to invest
millions of rupees in the huge factory building and equipment or joint ships
unless the arrangement for covering the risk is possible. This arrangement is
made possible by insurance. Insurance steps in to transfer such risk and
dangers to the shoulders of the person who are willing to accept the burden for
monetary considerations. Insurance is a device by which the loss likely to be
caused by an uncertain event is spread over a number of persons who are exposed
to it and who propose to insure themselves against such an event, the essence
of insurance is the elimination of risk and the substitution of certainty for
uncertainty. Insurance is thus a co-operative way of spreading risk.
In modern times, this
co-operation is brought about by means of a contract between each one of those
who are subject to risks and the company organizations who are prepared to
assume the risks. A contract of insurance may be defined as a contract between
two parties whereby a person undertakes in consideration of a fixed sum to pay
to the other a fixed amount of money on the happening of a certain event (death
or attaining a certain age in case of human life) or to pay the amount of
actual loss when it takes place through a risk insured, (in case of property).
The instrument containing the contract of insurance is called a policy. The
person whose risk is insured or assured, and the person or the company which
insures is known as insurer, assurer or underwriter. The consideration in
return for which the insurer agrees to make good the loss is known as premium.
The thing or property which forms the basis of insurance is called the
subject-matter of insurance. The interest of the assured in the subject-matter
is called the insurable interest.
A contract of
insurance whether it is marine, fire or life insurance very closely resembles a
gaming or wagering contract. A gaming or wagering contract is one in which A
promises to pay B a certain sum of money on the happening or non-happening of a
certain event. The essence of such a contract is that one party is to win and
the other is to lose upon a future event which at the time of the contract is
of uncertain nature. In a contract of insurance also there is a fair amount of
uncertainty involved. According to Lord Bramwell, in Salt v. Northampton, “ A life assurance is a sort of
wager”. The contract of insurance since the early stages had been recognized as
a gaming or wagering contract.
A contract of
insurance is not a wagering contract as it is the exact opposite of gambling.
There is no possibility of any gain because the underlying principle of an
insurance contract is to indemnify the individual from loss whether by fire,
accident or death. A contract of insurance is an absolutely valid contract
because the assured has an insurable interest in the life or property sought to
be insured, while in a wager no insurable interest exists. Insurable interest
takes the venom of wager out of a contract of insurance.
Kinds of Insurance:
Insurance contracts have been classified in various ways. The chief forms of
insurance comprise life, fire and marine. Many other risks are also covered by
insurance for example., accidents, sickness, bad debts, motor vehicles,
burglary.
Contract of insurance – essential elements
Basically, insurance
is a contract; therefore, the general principles relating to the law of
contracts apply to the policy of insurance. Contracts of insurance have all the
features of a simple contract. Like every other contract a contract of
insurance comes into existence when there is offer or proposal on one side and
acceptance of the same by the other. The contract of insurance must be made by
competent parties in order to be valid. The object of the contract must not be immoral
or illegal. Thus, insurance taken by a thief against being caught while
attempting a burglary would be illegal and therefore not enforceable at law. It
must be supported by consideration.
