Special Features of Insurance Contract

    Edited by: Vaani Garg

    Contract is an agreement between two parties. In a contract, one person gives a proposal to do something to another party who has the choice to accept or reject the proposal. When the other party accepts the proposal, it is enforceable by law and thereby the contract becomes a valid one.

    In the same way, in insurance contract, there are two parties- insured and insurer. Insured is the person who pays the premium amount to the insurance company and the insurer is the one who pays a fixed sum of money to insured on the event of loss mentioned in the contract.


    1.Valid agreement – One party that is insurer has given a proposal and the other party should have accepted this proposal.

    2. Legal relationship– In an insurance contract, there must be a legal relationship arising out of the contract. If one party refuses to fulfill the promise, then the other party has an option to go to court.

    3. Lawful consideration – In contract there must be a gain from something and that gain must be lawful.The mutual get and give is called consideration.

    4. Capacity of parties- The parties who are entering into contracts must have capacity to enter into a contract. Mad, disqualified persons and minors are incompetent to enter into contract.

    5. Free consent – The parties who are entering into a contract must have free consent. Coercion, undue influence, fraud, and misrepresentation by any party makes the contract invalid.

    6. Lawful object- The purpose of agreement must be lawful and not against the public good otherwise, it will become illegal.

    7. Formalities of law- The agreement should be registered , attested and property stamped.

    Besides these, the parties must fulfill the following conditions to complete an insurance contract-

    1. Utmost good faith

    2.Insurable interest

    3. Indemnity

    4. Proximate cause

    5. Subrogation

    6. return of premium

    Also read about Principles of Insurance Contract