What are the Characteristics of an insurance contract?

1. Characteristics of insurance contract 1. As a risk distributing device: The device of insurance serves to distribute the risk of economic loss among as many as possible of those who are subject to the same kind of risk. This broad sharing of economic risk is the principle of risk-distribution. 2. Contract of adhesion or fine print rule: Insurance is contract of adhesion considering that most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may "adhere" if he chooses but he cannot change. Insurance contracts are of this type, because the insurer writes the contract and the insured either 'adheres' to it or is denied coverage. 3. Aleatory: The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event which is uncertain, or which is to occur at an indeterminate time. Insurance contracts are of this type because, depending upon chance or any number of uncertain outcomes, the insured (or his or her beneficiaries) may receive substantially more in claim proceeds than was paid to the insurance company in premium. 4. Contract of indemnity: The contract of insurance is a contract of indemnity. It is the basis of all the property insurance. It means that the insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of actual loss 5. Uberrimae fides contract: A contract requiring perfect good faith. It requires the parties to the contract of insurance to disclose any material fact, which the applicant knows, or which he ought to know. Misrepresentations and Concealments should be avoided 6. Personal contract: Insurance contracts are usually personal agreements between the insurance company and the insured individual, and are not transferable to another person without the insurer's consent. 7. Principle of subrogation: The term subrogation means stepping into the shoes of others. The doctrine of subrogation refers to the right of the insurer to stand in the place of the insured, after settlement of a claim, in so far as the insured's right of recovery from an alternative source is involved. 8. Executory An executory contract is one in which the covenants of one or more parties to the contract remain partially or completely unfulfilled. Insurance contracts necessarily fall under this strict definition; of course, it's stated in the insurance and agreement that the insurer will only perform its obligation after certain events take place (in other words, losses occur). 9. Unilateral Insurance contracts are unilateral; the insured performs the act of paying the policy premium, and the insurer promises to reimburse the insured for any covered losses that may occur. Once the insured has paid the policy premium, nothing else is required on his or her part; no other promises of performance were made. Only the insurer has covenanted any further action, and only the insurer can be held liable for breach of contract. By Vipin P. Varghese Bharata Mata INstitute of Management Mob: 9946159970