The essential elements of insurance are listed below:
The agreement means communication by the parties with one another. There must be an offer and acceptance of the terms and conditions of the insurance contract. The acceptance or rejection of an offer is made by the insurer. The insurance contract becomes valid after the issuance of acceptance notice by the insurer to the insured.
2. Free consent
The parties involved in a contract are said to consent freely when they agree upon the same thing in same sense. There must be free consent between the two parties in the contract. The consent is free when the contract is not made by coercion, undue influence, fraud oor misrepresentation or mistake.
3. Competents to contract
The parties to the contract should be competent to enter into contracts. Every person is competent to contract who is of the age of majority according to the law and who is of sound mind and is not disqualified from by any law. The insurer must also be legally competent. The insurer must have license to sell the insurance contract.
4. Increase self-respect
There is the direct connection between self-respect and independence of a person in the society. Insurance supports to the person to be independent. It provides economic support to an individual, businessman which helps to increase the self-respect of the person in the society.
5. Legal consideration
In every contract, there should be a legal consideration. In an insurance contract, payment of premium is taken as a valid consideration. Without payment of premium, the insurance contract cannot be initiated.
6. Compliance with legal formalities
In the contract of insurance, the agreement between parties must be in written form and signed by both the parties. It must be properly tested by the witness and registered otherwise, it may not be enforced by the court.
The terms and conditions of a contract should be clear and certain. They should be clearly understood by both the parties. In insurance, the insurance company gives printed policy document which contains all the terms and conditions of the policy.
8. Insurable interest
Insurable interest refers that the insured must suffer if the loss takes place in the property. Incase of the property interest, ownership of property can support to insurable interest but in the case of life insurance, close family ties or marriage will satisfy the requirement of insurable interest.
9. Encourage saving
The insurance should pay the amount of premium regularly and compulsorily. It develops the habit of saving. The deposited insurance premium cannot be withdrawn like a blank deposit. Life insurance is the best method of saving an investment. It is a good meant to make provision for retirement age.
10. Writing and registration
The insurance contract must be in writing and duly signed, stamped and registered. The condition is fulfilled as the proposer signs in a printed proposal form. The insurance company issues the policy document properly signed and stamped.