In present insurance concept is a very important and very popular thing among people in the society. Human beings, their properties and their family members are always exposed to different kinds of risks, hence People transfer their risks to insurance companies. Insurance is a tool which reduces the cost of losses. Also it accumulates funds to meet individual losses.
Insurance may be defined as a contract between two parties. One party called insurer undertakes in exchange for a fixed sum called premium to pay the other party called insured a fixed amount of money after happening of a certain event.
Insurance provides safety and security against on a particular risk such as life insurance provides financial security against old age sufferings and death. Further insurance provides peace of mind. It removes the fears, anxiety, tensions and future uncertainty. Insurance reduces business risks.
Also insurance gives lot of benefits to the society. Following things are some examples for it.
- Life insurance encourages savings and it accelerates the economic growth of the country.
- Insurance provides strong hand and mind, with protection against loss of property and capital to produce more wealth.
- It helps to reduce inflation and it provides credit facilities.
- Insurance increases business efficiency eliminating the loss of damage, disappearance of property of goods.
- It helps to promote foreign trade providing protection again trade risk.
The main objective of every insurance contract is to give financial security and protection to the insured from any future uncertainties. Insured must never try to misuse this safe financial cover, because this is a contract between two parties. It depends on credibility of the both parties. An insurer must always investigate about any fraudulent insurance claim. It is also a duty of the insurer to accept and approve all genuine insurance claims. Sometimes insured are seeking profit opportunities by reporting false occurrences. It violates the terms and conditions of the insurance contract. Therefore insurer includes principles in the insurance contract. Insurance contract base on these principles. They are,
- Principle of Utmost good faith
- Principle of Insurable interest
- Principle of Indemnity
- Principle of Contribution
- Principle of Subrogation
- Principle of Proximate cause
These principles are identified under the principles of insurance law. Above all principles are applicable to general insurance contracts and only utmost good faith, insurable interest and proximate cause are applicable to life insurance contracts. These principles are necessary for clear interpretation of insurance contract. Also insurance has two main types. They are,
- Life insurance
- General Insurance
- Motor insurance
- Marine insurance
- Fire and property insurance
- Miscellaneous insurance
On the other hand insurance is a contract. It has basic elements of the contract. These elements are,
- Offer & Acceptance
- Legal capacity to contract or competency
- Consensus “ad idem”
- Legality of object