In the words of JUSTICE CHANNELL ”Insurance is a contract whereby one person called the insurer, undertakes in return for the agreed consideration called premium to pay to another person called the insured a sum of money or its equivalent on specified event.”
The characteristics of insurance is discussed under the following heads:
1. A CONTRACT:
The most important feature of insurance is that it is legal contract between the insurer and insured, under this insurer promises to compensate the insured for the loss which is mentioned in the policy and the insured promise to pay a fixed rate of premium which is consideration in this contract for the promise of the insurer.
It is a type of contract where one party agrees to compensate in case of loss suffered by another party.
2. UNDERTAKING OF RISK:
In insurance contract, bearing and protecting of risk is the subject matter of the contract. For example paying of insured amount in case of death of the assured, loss by fire or happening of marine perils.
The risk is undertaken by the insurer to compensate the insured on the happening of the risk mentioned in the policy. The insurance company bears the risk and make good the loss.
It restores the person standing as it was before the loss, it provides a mental relief to the insured that in case of loss, the insured will undertake his risk.
3. A COOPERATIVE DEVICE:
Insurance is cooperative device of sharing the burden of risk
of one on the shoulders of many. All the insured contribute the premium out of which the person who actually suffers loss is compensated or is paid up, insurance is a device to share the financial loss of few among many others.
4. PAYMENT OF POLICY AMOUNT ON THE HAPPENING OF EVENTS:
On the happening of a specified event, the insurance company is bound to make good the loss to the insured. Happening of an event is specific in life insurance that is death, but it is not so in case of marine, fire or accidental insurance.
In life insurance, a fixed amount is paid but in indemnity insurance (fire, marine, etc) amount of payment is uncertain depending upon the quantum of damage.
5. PREMIUM:
Payment of premium by the insured is another feature of an insurance contract.
Like other contracts, the factor of consideration is fulfilled by the premium because it is the subject for which insurer promises to undertake or bear the risk if insured.
In absence of premium, the promise will be NUDAM PACTUM, hence void.
To conclude insurance is a method to transfer the risks from insureds to
insurers who agrees to it for a consideration known as premium and
promises to bear and compensate the insured on the specified extent of loss.
6. CONTRACT OF ADHESION:
It means it is contract which is not arrived by mutual negotiations between the parties, It means he has to adhere to the policy in which way it is offered there is no chance if bargain.
It means the insured accepting the policy must accept whole of it he cannot accept one part of and leave the another. All he can do is that he can select the most appropriate policy among various policies which the insurer is offering.
7. DEVELOPMENT OF LARGER INDUSTRIES:
Insurance helps industries to develop who have more risk in their setting up, the owner may get the industries assets insured and in case of loss he will be compensated.
The financial institution may be ready to give credit to such industrial units which have insured their assets including plant and machinery etc.
8. PROVIDE PROTECTION:
Insurance provides protection against future risk, accidents, uncertainty.
It protects the insured against all the losses which are specified or for which the insurance is done.
CONCLUSION:
The above-mentioned feature makes us clear that insurance is a contract between two parties and it is a cooperative device to undertakes the loss, it protects the insured against the loss by the insurer in return of premium paid by the insured.
Thus, it is clear that insurance makes good the loss.
