Elements of an Insurance Contract
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 a contract. In terms of Insurance, these are the fundamental conditions of the insurance contract that binds both parties, validates the policy, and makes it enforceable by the law.
Insuranceopedia explains Elements of an Insurance Contract
In order for an insurance contract to be legally binding, certain essential requisites must be stipulated in the contract. These elements are classified into two broad categories:
- The elements of a general contract: offer and acceptance, consideration, legal capacity, and legal purpose.
- The elements of special contract in relation to insurance. This revolves around insurance principles, such us indemnity, insurable interest, utmost good faith, subrogation, assignment and nomination, warranties, proximate cause, and return of premium.
The general elements of the contract can be further elaborated as follows:
Offer and Acceptance: The insured makes an offer by submitting an application to insurance company. The insurer accepts and confirms the application and issues a policy.
Consideration: The premium payable by the insured to the insurer. It also includes the money paid out by insurance company when the insured files a claim.
Legal Capacity: The insured must be legally competent before entering into an agreement with the insurer. The insurer must also be competent and licensed under prevailing laws to provide insurance.
Legal Purpose: The purpose for issuance of the insurance policy must fall within legal frameworks. An insurance contract encouraging an illegal activity is invalid.