4. Explain the Essentialia of a Contract of Insurance | Study Guide - Edubirdie

University:
Eastern Kentucky University
Course:
LGS 300 | Introduction to Legal Studies
Academic year:

2022
Views:

474

Pages:

1
Author:

Alma Stephenson

4. Explain the essentialia of a contract of insurance The essentialia refer to the minimum essential terms that must be present for a valid contract of insurance to exist. Without these, a binding insurance contract cannot be formed. A Risk     The insured event must involve an uncertain future occurrence. This event must be fortuitous (not certain to happen, or uncertain as to when or how it will happen). Examples: - Damage due to fire or theft - Death in life insurance - Accident or illness The risk must be one that could result in loss to the insured and be lawful. A Premium     The insured must pay, or undertake to pay, a monetary amount (called a premium) to the insurer. This payment is the consideration for the insurer's undertaking to cover the risk. It can be: - Once-off (e.g., short-term travel insurance), or - Recurring (e.g., monthly payments in life or car insurance) The premium reflects the value of the risk being assumed and forms a key part of the mutual obligation between the parties. An Insurable Interest    The insured must have a direct, legally recognisable interest in the subject matter of the insurance. The insured must stand to suffer financial or other loss if the event occurs. If no insurable interest exists, the contract is void for being contrary to public policy (it would be a wager). An Undertaking by the Insurer    The insurer undertakes to: - Indemnify the insured (in the case of non-life insurance), or - Provide a benefit (in the case of life or accident insurance), Upon the occurrence of the specified uncertain event. This undertaking must be clear, binding, and enforceable once the risk materialises.

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