Page 246 - DMGT303_BANKING_AND_INSURANCE

Unit 12: Insurance

The insurers are required to maintain solvency margins so that they are in a position to meet Notes
their obligations towards policyholders with regard to payment of claims.
It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and
conditions under the policy. The advertisements issued by the insurers should not mislead the
insuring public.
All insurers are required to set up proper grievance redress machinery in their head office and
at their other offices.
The Authority takes up with the insurers any complaint received from the policyholders in
connection with services provided by them under the insurance contract.

12.3 Basic Terminology related to Contract of Insurance

Insurance Contract: Legally binding unilateral agreement between an insured and an insurance
company to indemnify the buyer of a contract under specified circumstances. In exchange for
premium payment(s) the company covers stipulated perils.
Capacity of parties: Legal capability of those involved in mutual assent of making a contract,
including an insurance contract. Those who have been deemed to be incompetent to make a
valid contract include intoxicated and insane persons, and enemy aliens, Minors can enter into
a contract, but it is voidable at the option of the minor.
Legal plan: Group arrangement in which a network of attorneys provides legal services to the
participants in the plan with the attorney fees being reimbursed by the provider. The attorneys
who are members of the network provide their legal services at a reduced rate from their
customary fee to the plan participants.
Indemnity: It is compensation for loss. In a property and casualty contract, the objective is to
restore an insured to the same financial position after the loss that he or she was in prior to the
loss. But the insured should not be able to profit by damage or destruction of property, nor
should the insured be in a worse financial position after a loss.
Conditional: Terms specifying obligations of an insured to keep a policy in force. For example,
an insured must pay the premiums due; in life insurance, if death occurs, the beneficiary or the
insured’s estate must submit proof of death; if there is a property loss, the insured must submit
proof of loss.
Insurable interest: Relationship between an insured person or property and the potential
beneficiary of the policy. For example, a wife has an insurable interest in her husband’s life,
because she would be financially harmed if he were to die. Therefore, she could receive the
proceeds of the insurance policy if he were to die while the policy was in force. If there is no
insurable interest, an insurance company will not issue a policy.
Mutual assent: Offer and acceptance upon which an agreement is based. For a contract to be
legal (and thus enforceable in a court of law), an offer must be made by one party to another
party, who accepts the offer. If properly negotiated, the insurance contract is deemed to be a
contract of mutual assent.
Consideration: Something of value that one party gives to another in exchange for a promise or
act. A consideration can be in the form of money, commodities, or personal services; in many
industries the forms have become standardized.

12.4 Legal Definitions

According to Chief Justice Tindal, "Insurance is a contract in which sum of money is paid by the
assured in consideration of the insurer's incurring the risk of paying a large sum upon a given
contingency."

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