Page 249 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes 2. Right to specify the rules and conditions that govern the promise made under the policy:
Insurer explicitly states as to what risks the policy covers and the terms and conditions
subject to which such losses will be reimbursed.
3. Responsibility to pay for the losses occurred and claimed by the insured: Once the insured
suffers losses and lodges claim, the insurer is obliged to honour payments provided they
are within the contractual terms.

12.6.2 Rights and Responsibilities of Insured

1. Obligation to pay premium to the insurer: The insured has to pay the prescribed premium
to the insurer so as to create a contractual obligation on the part of insurer to reimburse
the losses as and when they occur.
2. Right to collect payment from the insurer if a covered loss occurs: In the event of
materialization of risk, the insured is entitled to claim reimbursement of losses from the
insurer.
3. Obligation to comply with the terms and conditions prescribed by insurer: The insured
has to comply with all the terms and conditions laid down in the policy and also agreed by
him at time of creating the policy.
In an insurance contract, one should remember that a right created for one party represents a
duty for the other party. In the event of default of premium or non-compliance of conditions by
insured, an insurer may cancel the insurance or refuse to pay claims/payment of losses.

12.7 Nature of Insurance Contract

Insurance is a contract. A contract of insurance is a contingent contract. The general principles of
law of contract must be complied with for a contract of insurance to be valid. Contract of
insurance comes into existence where there is an offer (from the person facing the risk) and the
underwriter or the insurer accepts it by issuing the policy. The contract of insurance (in order to
be a valid contract) can be entered into only by person(s) competent to contract.
A contract of insurance other than life insurance contract is a contract of indemnity. The insurer
undertakes to indemnify the insured for loss or damage arising as a result of risk specified. In
case of life insurance, if a person dies the insurance company can only give a specified claim
amount as compensation to the survivors; it cannot indemnify the loss of lost life as the person
who is dead cannot be brought back.

12.8 Differences between Insurance Contract and Wagering Contract

1. People have sometimes said that the contract of insurance whether it is marine, fire or life
insurance it is similar to a wagering contract.

Example: Once Mr. 'A' promised to pay Mr.' M' a sum of Rs, 50,000 if India won the cricket
match against Australia that day. Payment of this sum depends on the future event, which at the
time of contract is of uncertain nature. If the event does not happen no payment will be made.
This is a wagering contract.
2. However, contract of insurance is different. The following are the points of distinction
between the Insurance Contract and Wagering Contract:

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