We know the insurance policy is based on the law of contract. in other word, it is a contract between insured and insurer. Hence to be legally enforceable an insurance contract must have certain base requirements. Those essential requirements of an insurance contract are given below.
1. Offer and acceptance:
One of the first requirement of insurance contract is offer and acceptance. at first the applicant for insurance makes the offer hat is also known as proposal. Generally the broker prepares this proposal and the company
accepts or rejects the offer. the contract cannot be legally enforced until a policy is issued. In property and liability insurance. The offer and acceptance can be oral of writing out the application for life insurance is always in written under life insurance a conditional premium receipt is given to the applicant and the most common conditional receipt is the inseparability premium.
2. Consideration:
Another important requirement for insurance is consideration which refers the meaning “something for something” in mercantile law. The premium is determined on assessment of the proposal and is paid at the time of the contract. The premium is called consideration to the contract. The insurer’s consideration is the promise to do certain things as specified in the contract. It includes paying for a loss from different risks.
3. Competent parties:
Another important requirement is competent parties. It means each party must be legally competent and they must have legal capacity to enter into a binding contract. The persons, who are insane, intoxicated and corporations that act outside the scope of their authority cannot enter into contract.
4. Legal purpose:
An insurance contract should have legal purpose. The contract which encourages or promotes something illegal or immoral cannot be enforce under it. In another words, to enter into legal insurance contract there should be legal and moral activities in the interest of general public.
5. Free consent:
Parties entering into the contract should enter into it by their free consent. They must be free from coercion, undue influence, fraud or misrepresentation and mistakes.