Elements of an Insurance Contract

Last Updated: September 1, 2020

Definition - What does Elements of an Insurance Contract mean?

The elements of an insurance contract are the standard conditions that must be satisfied or agreed upon by both parties of the contract (the insured and the insurance company). In terms of insurance, these are the fundamental conditions of the insurance contract that bind both parties, validate the policy, and make it enforceable by law.

By signing the insurance contract, you have essentially agreed to follow the different elements. Without all of the elements of an insurance contract present, the policy may not be valid, and that means the obligations of both parties may not be enforceable in court.

The elements of an insurance contract are very similar to the elements required for any other legally binding contract with a few extra elements that are special to insurance contracts. You need both types of elements to be present before a valid and proper insurance policy is produced.

Insuranceopedia explains Elements of an Insurance Contract

In order for an insurance contract to be legally binding, the document must meet the essential elements required of all legally binding contracts, plus a few special elements that are specific to and required by insurance contracts.

First let us talk about the elements required of legally binding contracts in general:

  • Offer and Acceptance - This refers to an offering being made and then being accepted by the other party. When you fulfill this legal requirement, you are saying that all of the negotiations have been settled and you’ve come to an agreement. This is also often called “agreement” or a “meeting of the minds”. In the insurance context, that means you have made an application to the insurance company, they have accepted it and you have accepted the policy terms they offered.

  • Consideration - This refers to a fair exchange of value. A contract where one party gets everything while another party contributes nothing does not meet this requirement. In the example of an insurance policy, you are paying them premiums while they are providing you with a promise to pay claims in the future.

  • Legal Capacity - To satisfy this requirement, everyone that is a party to the contract must have the legal capacity or competence to enter into a contract. This means you have to meet certain requirements such as being above the age of majority in your jurisdiction and have the mental capacity to understand what you are signing and agreeing to.

  • Legal Purpose - Obviously, the courts will not enforce a contract that is not legal. For example, a contract for the provision of illegal services would not be a legal and valid contract because the course would not enforce it.


The other elements required are specific to insurance contracts:

  • Indemnity.

  • Insurable Interest.

  • Utmost Good Faith.

  • Subrogation.

  • Assignment and nomination.

  • Warranties.

  • Proximate Cause.

  • Return of Premium.

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