Classification of Insurance Contract

 

Insurance contract can be classified into two types as the following:

1) Contract of Indemnity

2) Life Insurance Contract

1) Contract of Indemnity

The contract of indemnity is called the contingent contract because the indemnity depends on the incidents in the future. An incident is uncertain, may or may not happen. If the incident takes place, the indemnity should be given but if the incident does not occur, the indemnity should not be given. An indemnity refers to the economic loss that occurred should not be given. An indemnity refers to the economic loss that occurred to the insured to be fulfilled by the insurance company. The objective of indemnity is to restore the property of the insured to the condition before the incident.

Indemnity is provided only up to any fixed amount if the subject matter of insurance is suffering damage within the insurance period because the insurer makes insurance by taking the premium from the insured. The contract of indemnity has its own types of characteristics. If any person has effected the fire insurance for one year and if that property is destroyed by fire within the insurance period, the insurer indemnified that property based on market value (price). But the insurer, in any way, does not give more amount than the insured amount. Thus, in an insurance contract, the amount whichever is lower, of actual damage or insured amount is given. The insured has no right to get more than that. In fact, it seems justifiable and legal.

Under the contract of indemnity in the insurance contract, there are marine, fire, property, accident, and guarantee insurance. If a higher amount that real loss is given in these insurance, many persons will set fire or invite the incident of the fire willingly to ruin the property insured. If it happens, so, on the way, there is a possibility of growth of the activity of crime, on the other hand, the insurance turns into the contract of gambling. But if only the real indemnity is given based on real loss, the insured persons save their property. In the contract of indemnity attention should be paid to the following things:

• The persons, who claim the indemnity, should submit evidence of real loss.
• The amount of indemnity should not be more than the amount insured.
• If the insured receives more amount than that of the real loss, he should return the excess amount to the insurer.
• The principle of indemnity does not apply to life insurance and personal accident insurance. Except for these two, all other insurance contracts are contracts of indemnity. Accident insurance too, sometimes, incorporates a provision to provide a fixed amount as indemnity. If some person's eye, hand, legs, etc are broken or lost. In such a condition, the principle of indemnity becomes applicable.
• In the contract of indemnity, the principle of subrogation is applicable after the insurer has indemnified to the insured.
• In the contract of indemnity, if the insured's property is damaged, the real loss and damage should be assessed based on market value.

2) Life Insurance Contract

The life insurance contract is very important. It is based on the principle of contract. In a life insurance contract, the amount of insurance mentioned in the policy is available if the insured is alive until the period of insurance to the insured himself if he is dead and if he has any wished (nominee) person, to the wished person if the wished person is dead or if there is no wished person to his nearest heir from the insurer. The principle of subrogation does not apply to the insurance contract because we cannot assess the life of a man.

DIFFERENCES BETWEEN CONTRACT OF INDEMNITY AND LIFE INSURANCE CONTRACT

We can differentiate the contract of indemnity and life insurance contract in the following ways: