Other Features Of An Insurance Contract

Aleatory

Insurance contracts are said to be aleatory i.e. the values given up by the parties are unequal. The insurer may pay a large claim in return for a small amount (premium) or he may not pay at all. In either case the change of values are not equal. It is not true to say that an insured will not get anything if there is no claim but what he does receive is freedom from worry whether he sustain a loss or not. The peace of mind and freedom from worry are of far greater worth than the amount of petty premium paid.

Conditional

The Insurer is not obligated to perform if the conditions set forth in the contract are not met. The Insured does not promise to meet the conditions but he cannot force the Insurer to perform unless he does so. An example of this is the condition in an insurance policy regarding notification of claims that the Insurer be informed of a loss within a stipulated time period. The Insured is not compelled to do so but the Insurer can refuse to keep his promise if the Insured does not comply with this condition. Because of this conditional nature of an Insurance contract the Insured must be fully aware of the conditions of the policy if he is to receive its protection.

Unilateral

Only the Insurer makes a promise to do something, the insured on the other hand after payment of premium does not make any promises, though he must comply with the conditions if he wants the insurer to perform. He does not promise to meet the conditions, therefore Insurance contracts are said to be unilateral as in contrast to bi-lateral contracts in which both parties make enforceable promises and either party can force the other to perform or pay damages for not performing.

Personal

Insurance contracts are personal meaning thereby that it is the loss to person and not to the property itself that is insured. You may say your car is insured but actually its you who is insured against financial loss caused by something happening to your car. That is why when a car is sold the Insurance does not automatically pass on to the new owner. It may be assigned but only with the consent of the Insurer because it is the people who are insured and they effect the hazard and Insurer are concerned as much about the person as with the property which may be subject matter of Insurance.

Adhesion

The Insurance contracts are contracts of Adhesion. Most commercial contracts are formulated after bargaining between the parties to the contract but Insurance contracts are created by the insurers alone and they are presented to the insured and he can take them as they are or leave them. This fact influence the way courts handle disputes regarding contracts of Insurance. The rule is that if there is an ambiguous clause then it will be interpreted in favour of the Insured on the assumption that since the Insurer has worded the contract he should know what he wants to say and write it down clearly.

This is one reason why Insurance contracts are complicated. Failure to state the specifications of what is covered and what is not and that too in a clear manner can prove to be costly for an Insurance company because if there is a difference of opinion the Insurer will be the victim of court interpretation.