Essentials of a valid insurance contract
An insurance contract is a legal document that is the basis for an insurance policy that contains all the terms and conditions of insurance. Being a legal document it must fulfill certain legal requirements in order to become valid. Some of those requirements have been discussed below:
A) Offer and acceptance
The most important element of any contract is the offer and acceptance in the context of insurance offer is done by the party who wants to do insurance. On the other hand acceptance or rejection is done by the insurer. The insured has to submit a proposal by furnishing all information’s about himself which is evaluated by the insurance company and if satisfied accepts the proposal and issues the insurance policy.
Consideration is the value i.e. given by one party to another. Both the insured and the insurer should get benefit from the insurance contract. Consideration for the insured is the promise or guarantee of the insurer to compensate for the loss against certain risks up to the insured amount. Similarly, regular payment of premium by the insured is the consideration for the insurer.
C) Competent parties
According to this requirement, both the insured and the insurer should be legally competent to sign an insurance contract. On part of the insured the following three conditions must be fulfilled i.e. :
- Shouldn’t be a minor
- should be of a sound mind
- shouldn’t be disqualified by law
The competency on part of the insurer is that it must be legally registered to have the license of issuing an insurance policy.
D) Free consent
The parties involved in a contract are said to have free consent when they agree upon the same thing in the same manner. There shouldn’t be any forceful activity from either of the parties to influence each other. The consent is said to be free when it is not by coercion fraud, mistake or miss-interpretation. A contract without free consent becomes null and void.
E) Legal object
The contract of insurance is legal when the object is legal. The objective will be legal only when there is an insurable interest. The objective of insurance should be purely legal i.e. to prevent the loss suffered by the insured due to uncertain accidental cause.