Insurance contracts are administered by the Indian Contract Act (1872), which prescribes the following important elements in order for contract to be legally valuable1.
- i. Offer and Acceptance
- ii. Consideration
- iii. Agreement between Parties
- iv. Capacity of the Parties
- v. Legality of the Contract
i. Offer and Acceptance: The offer is given by one party and it is to be accepted by other party, then only the contract is valid legally. The offer is a proposal in the form of writing or oral. The risk details are generally provided with status of property or person and period of insurance aspired. The various standard forms are used for different types of insurance. The acceptance of offer is given in the form of letter of acceptance or cover letter along with the payment of premium.
ii. Consideration: Consideration is the promise or act offered by the one party and is accepted by the party as the price of that promise. The premium is the consideration from the insured for the promise to indemnity that is the consideration from the insurer. According to Insurance Act, (1938) (64 VB) as amend in 1968, payment of premium in advance is a precondition for valuable contract.
iii. Agreement between the Parties: Both parties must agree to the same things in same sense. The perils, risk and the sum insured should be agreed and accepted by both the parties for a particular period and consent must be aroused for common intension.
iv. Capacities of the Parties: The Indian Contract Act mentions that every person is competent to contract who is of the age of maturity according to the law to which he/she is subject and who is of sound mind and is not disqualified from contracting by law to which the person is subject.
v. Legality of Contract: The subject matter of the contract should be legal. Section 23 of the Indian Contract Act indicates the object of an agreement is unlawful unless. (a) It is forbidden by law. (b) Is of such nature that, if permitted, it would defeat the provisions of any law or is fraudulent. (c) Involves or implies injury to the person and property of another or. (d) The courts regard it as immoral or opposed to public policy.
For citing this article use:
- Kolla, V. R. S. K. (2017). A study on customer perceptions and purchase Intentions towards life insurance products and Services of both public and private companies.
- Sajid Ali, Riyaz Mohammad and Masharique Ahmed, (2007), “Insurance in India”, Regal Publication, New Delhi, pp.37-46.