All insurance contracts are governed by the concept of ‘offer and acceptance’. This requires you to fill the proposal form and send it to the insurance company. Sometimes you are also required to attach a check for the premium amount, with the proposal form.

Your filling the proposal form and sending it to the insurance company is the ‘offer’ and when the insurance company accepts your proposal it is the ‘acceptance’ part of the concept. The amount you pay as premium is considered as the ‘consideration’ part of the contract. The concept of ‘legal capacity’ also applies to insurance contracts. It requires both the parties to be legally capable of entering a contract. Your insurance contract is based on ‘legal purpose’, which means that the contact is not meant for encouraging illegal activities. The other legal principles that govern the contracts are:

Principle of Indemnity:

This principle requires the insurer to pay an amount, not more than the actual loss suffered, in case of loss. The amount paid as claim by the insurance company should not be more than the sum assured in the insurance contract. The aim is to provide a claim amount that will help the claimant to regain the lost financial position. In some indemnity contracts, the amount payable by the insurance company is subject to the amount of actual loss. Some indemnity contracts also have a provision for the claim to be paid only if the actual loss exceeds a certain amount. For example, in an auto insurance contract of 3000 dollars, you would be eligible for the claim amount only if your actual loss exceeds 3000 dollars. In case, the actual loss amount is below 3000 dollars, you would be liable to bear all the costs.

Insurable Interest

In this insurance cover, the insurance contract covers only those properties or events specified at the time of investment. For example, if you live in your uncle’s house and apply for a homeowners’ insurance, the insurance company will reject the claim, since you are not the owner of the property and do not suffer any personal financial loss in case the house gets damaged.