FEATURES OF INSURANCE CONTRACT

FEATURES OF INSURANCE CONTRACT

Though all contracts share fundamental concepts and basic elements, insurance contracts typically possess
a number of characteristics not widely found in other types of contractual agreements. The most common of
these features are listed here:
(a) Aleatory
If one party to a contract might receive considerably more in value than he or she gives up under the terms
of the agreement, the contract is said to be aleatory. 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 dollars. On the
other hand, the insurer could ultimately receive significantly more money than the insured party if a claim is
never filed.
(b) Adhesion
In a contract of adhesion, one party draws up the contract in its entirety and presents it to the other party on
a 'take it or leave it' basis; the receiving party does not have the option of negotiating, revising, or deleting
any part or provision of the document. Insurance contracts are of this type, because the insurer writes the
contract and the insured either 'adheres' to it or is denied coverage. In a court of law, when legal
determinations must be made because of ambiguity in a contract of adhesion, the court will render its
interpretation against the party that wrote the contract. Typically, the court will grant any reasonable
expectation on the part of the insured (or his or her beneficiaries) arising from an insurer-prepared contract.
(c) Utmost Good Faith
Although all contracts ideally should be executed in good faith, insurance contracts are held to an even
higher standard, requiring the utmost of this quality between the parties. Due to the nature of an insurance
agreement, each party needs - and is legally entitled - to rely upon the representations and declarations of
Lesson 3 Insurance Contract and Indian Market Conditions 29
the other. Each party must have a reasonable expectation that the other party is not attempting to defraud,
mislead, or conceal information and is indeed conducting themselves in good faith. In a contract of utmost
good faith, each party has a duty to reveal all material information (that is, information that would likely
influence a party's decision to either enter into or decline the contract), and if any such data is not disclosed,
the other party will usually have the right to void the agreement.
(d) 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).
(e) Unilateral
A contract may either be bilateral or unilateral. In a bilateral contract, each party exchanges a promise for a
promise. However, in a unilateral contract, the promise of one party is exchanged for a specific act of the
other party. 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. It must be noted
that 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.
(f) Conditional
A condition is a provision of a contract which limits the rights provided by the contract. In addition to being
executory, aleatory, adhesive, and of the utmost good faith, insurance contracts are also conditional. Even
when a loss is suffered, certain conditions must be met before the contract can be legally enforced. For
example, the insured individual or beneficiary must satisfy the condition of submitting to the insurance
company sufficient proof of loss, or prove that he or she has an insurable interest in the person insured.
There are two basic types of conditions: conditions precedent and conditions subsequent. A condition
precedent is any event or act that must take place or be performed before the contractual right will be
granted. For instance, before an insured individual can collect medical benefits, he or she must become sick
or injured. Further, before a beneficiary will be paid a death benefit, the insured must actually become
deceased. A condition subsequent is an event or act that serves to cancel a contractual right. A suicide
clause is an example of such a condition. Typical suicide clauses cancel the right of payment of the death
benefit if the insured individual takes his or her own life within two years of a life insurance policy's effective
date.FEATURES OF INSURANCE CONTRACTFEATURES OF INSURANCE CONTRACT
Though all contracts share fundamental concepts and basic elements, insurance contracts typically possess
a number of characteristics not widely found in other types of contractual agreements. The most common of
these features are listed here:
(a) Aleatory
If one party to a contract might receive considerably more in value than he or she gives up under the terms
of the agreement, the contract is said to be aleatory. 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 dollars. On the
other hand, the insurer could ultimately receive significantly more money than the insured party if a claim is
never filed.
(b) Adhesion
In a contract of adhesion, one party draws up the contract in its entirety and presents it to the other party on
a 'take it or leave it' basis; the receiving party does not have the option of negotiating, revising, or deleting
any part or provision of the document. Insurance contracts are of this type, because the insurer writes the
contract and the insured either 'adheres' to it or is denied coverage. In a court of law, when legal
determinations must be made because of ambiguity in a contract of adhesion, the court will render its
interpretation against the party that wrote the contract. Typically, the court will grant any reasonable
expectation on the part of the insured (or his or her beneficiaries) arising from an insurer-prepared contract.
(c) Utmost Good Faith
Although all contracts ideally should be executed in good faith, insurance contracts are held to an even
higher standard, requiring the utmost of this quality between the parties. Due to the nature of an insurance
agreement, each party needs - and is legally entitled - to rely upon the representations and declarations of
Lesson 3 Insurance Contract and Indian Market Conditions 29
the other. Each party must have a reasonable expectation that the other party is not attempting to defraud,
mislead, or conceal information and is indeed conducting themselves in good faith. In a contract of utmost
good faith, each party has a duty to reveal all material information (that is, information that would likely
influence a party's decision to either enter into or decline the contract), and if any such data is not disclosed,
the other party will usually have the right to void the agreement.
(d) 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).
(e) Unilateral
A contract may either be bilateral or unilateral. In a bilateral contract, each party exchanges a promise for a
promise. However, in a unilateral contract, the promise of one party is exchanged for a specific act of the
other party. 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. It must be noted
that 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.
(f) Conditional
A condition is a provision of a contract which limits the rights provided by the contract. In addition to being
executory, aleatory, adhesive, and of the utmost good faith, insurance contracts are also conditional. Even
when a loss is suffered, certain conditions must be met before the contract can be legally enforced. For
example, the insured individual or beneficiary must satisfy the condition of submitting to the insurance
company sufficient proof of loss, or prove that he or she has an insurable interest in the person insured.
There are two basic types of conditions: conditions precedent and conditions subsequent. A condition
precedent is any event or act that must take place or be performed before the contractual right will be
granted. For instance, before an insured individual can collect medical benefits, he or she must become sick
or injured. Further, before a beneficiary will be paid a death benefit, the insured must actually become
deceased. A condition subsequent is an event or act that serves to cancel a contractual right. A suicide
clause is an example of such a condition. Typical suicide clauses cancel the right of payment of the death
benefit if the insured individual takes his or her own life within two years of a life insurance policy's effective
date.Though all contracts share fundamental concepts and basic elements, insurance contracts typically possess
a number of characteristics not widely found in other types of contractual agreements. The most common of
these features are listed here:
(a) Aleatory
If one party to a contract might receive considerably more in value than he or she gives up under the terms
of the agreement, the contract is said to be aleatory. 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 dollars. On the
other hand, the insurer could ultimately receive significantly more money than the insured party if a claim is
never filed.
(b) Adhesion
In a contract of adhesion, one party draws up the contract in its entirety and presents it to the other party on
a 'take it or leave it' basis; the receiving party does not have the option of negotiating, revising, or deleting
any part or provision of the document. Insurance contracts are of this type, because the insurer writes the
contract and the insured either 'adheres' to it or is denied coverage. In a court of law, when legal
determinations must be made because of ambiguity in a contract of adhesion, the court will render its
interpretation against the party that wrote the contract. Typically, the court will grant any reasonable
expectation on the part of the insured (or his or her beneficiaries) arising from an insurer-prepared contract.
(c) Utmost Good Faith
Although all contracts ideally should be executed in good faith, insurance contracts are held to an even
higher standard, requiring the utmost of this quality between the parties. Due to the nature of an insurance
agreement, each party needs - and is legally entitled - to rely upon the representations and declarations of
Lesson 3 Insurance Contract and Indian Market Conditions 29
the other. Each party must have a reasonable expectation that the other party is not attempting to defraud,
mislead, or conceal information and is indeed conducting themselves in good faith. In a contract of utmost
good faith, each party has a duty to reveal all material information (that is, information that would likely
influence a party's decision to either enter into or decline the contract), and if any such data is not disclosed,
the other party will usually have the right to void the agreement.
(d) 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).
(e) Unilateral
A contract may either be bilateral or unilateral. In a bilateral contract, each party exchanges a promise for a
promise. However, in a unilateral contract, the promise of one party is exchanged for a specific act of the
other party. 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. It must be noted
that 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.
(f) Conditional
A condition is a provision of a contract which limits the rights provided by the contract. In addition to being
executory, aleatory, adhesive, and of the utmost good faith, insurance contracts are also conditional. Even
when a loss is suffered, certain conditions must be met before the contract can be legally enforced. For
example, the insured individual or beneficiary must satisfy the condition of submitting to the insurance
company sufficient proof of loss, or prove that he or she has an insurable interest in the person insured.
There are two basic types of conditions: conditions precedent and conditions subsequent. A condition
precedent is any event or act that must take place or be performed before the contractual right will be
granted. For instance, before an insured individual can collect medical benefits, he or she must become sick
or injured. Further, before a beneficiary will be paid a death benefit, the insured must actually become
deceased. A condition subsequent is an event or act that serves to cancel a contractual right. A suicide
clause is an example of such a condition. Typical suicide clauses cancel the right of payment of the death
benefit if the insured individual takes his or her own life within two years of a life insurance policy's effective
date.