Q. EXPLAIN THE PRINCIPLES OF INSURABLE INTEREST.

Presentation on theme: "Chapter Three The Principle of

Insurable Interest"— Presentation transcript:

1 Chapter Three The Principle of Insurable Interest

2 Contents1. The meaning of insurable interest2. The significance of insurable interest3. The
application of insurable interest4. When does insurable interest begin to exist?5. Common
features of insurable interest

3 1. The meaning of insurable interest

“the legal right to insure arising outof a financial relationship, recognizedat law, between the
insured and thesubject matter of insurance.”---CII textbook

4 “an insurable interest refers to the interest which the applicant has in the subject matter of
the insurance and is recognized by laws.The subject matter of the insurance refers to either
to the property of the insured and related interests associated therewith, or to the life and
body of the insured, which is the object of the insurance.” Insurance Law

5 2. The significance of insurable interest

6 3. The application of insurable interest

7 Insurable interest in property insurance

it often arises out of ownership where the insured is the owner of the subject matter of
insurance.house-owner can insure his houseA shopkeeper can insure his stock

8 Insurable interest in liability insurance

a person has insurable interest to the extent of any potential legal liability he may incur by
way of damages and other costs.

9 4. When does insurable interest begin to exist?

In marine insurance contract, the insured must be interested in the subject matter insured at
the time of loss.Insurable interest in life insurance is only required at inception.

10 5. Common features of insurable interest

5.1 Insurer’s insurable interestInsurance companies have insurable interest in their liability to
pay claims to insureds.This interest gives them the right to seek reinsurance.

11 5.2 Insurable interest being enforceable at law

If a policy is taken out without insurable interest, it means the insurance is unenforceable.If it
is a life insurance policy taken out as a gamble on someone’s life, such policy would be void
and illegal.
12 5.3 Insurable interest in possession
Lawful possession of property normally has insurable interest if that possession is
accompanied by responsibility.

13 5.4 Financial valuationGenerally speaking, the amount of insurable interest must be

capable of financial valuation.

14 5.5 Assignment of insurable interest

Assignment of policy referring to transfer of rights can be carried out. But in the case of
personal contracts, it requires the consent of the insurer.

Q. EXPLAIN ASSIGNMENT AND NOMINATION OF LIFE INSURANCE POLICIES.

ANS:

What is assignment in life insurance?

A life insurance policy can be assigned when rights of one person are
transferred to another. The rights to your insurance policy can be transferred
to someone else for various reasons. The process is known as assignment.

An “assignor” (policyholder) is the person who assigns the insurance policy.

An “assignee” is the person to whom the policy rights have been transferred,
i.e. the person to whom the policy has been assigned.

In the event rights are transferred from an Assignor to an Assignee, the rights
of the policyholder are canceled, and the Assignee becomes the owner of the
insurance policy.

People often assign their life insurance policies to banks. A bank becomes the
policy owner in this case, while the original policyholder continues to be the
life assured whose death may be claimed by either the bank or the policy
owner.

Types of Assignment
There are two ways to assign an insurance policy. They are as follows:

1. Absolute Assignment
During this process, the rights of the assignor (policyholder) will be completely
transferred to the assignee (person to whom the policy rights have been
transferred). It is not subject to any conditions.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr.
Tripathi wants to gift his wife this policy. Specifically, he wants to make
“absolute assignment” of the policy in his wife's name, so that the death
benefit (or maturity proceeds) can be paid directly to her. After the absolute
assignment has been made, Mrs. Tripathi will own this policy, and she will be
able to transfer it to someone else again.

2. Conditional Assignment
As part of this type of assignment, certain conditions must be met before the
transfer of rights occurs from the Assignor to the Assignee. The Policy will
only be transferred to the Assignee if all conditions are met.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh

Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the
banker asked him to assign the term policy in their name. To acquire a home
loan, Mr. Pujari can assign the insurance policy to the home loan company. In
the event of Mr. Pujari’s death (during the loan tenure), the bank can collect
the death benefit and get their money back from the insurance company.

Mr. Pujari can get back his term insurance policy if he repays the entire
amount of his home loan. As soon as the loan is repaid, the policy will be
transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the
outstanding loan balance, the bank will be paid from the difference between
the death benefit and the loan and the balance will be paid directly to the
nominee. In the above example, the remaining amount (if any) will be paid to
Mr. Pujari’s beneficiaries (legal heirs/nominee).

Key Points to know Note About Assignment

In regards to the assignment, the following points should be noted:

• A policy assignment transfers/changes only the ownership, not the risk

associated with it. The person assured thus becomes the insured.
• The assignment may lead to cancellation of the nomination in the policy
only when it is done in favour of the insurance company due to a policy
loan.
• Assignment for all insurance plans except for the pension plan and the
Married Women's Property Act (MWP), can be done.
• A policy contract endorsement is required to effect the assignment.

What is nomination in life insurance?

Upon the death of the life assured, the nominee/ beneficiary (generally a close
relative) receives the benefits. Policyholders appoint nominees to receive
benefits. Under the Insurance Act, 1938, Section 39 governs the nomination
process.
Types of Nominees
In a life insurance policy, the policyholder names someone who will receive
the benefits in the event of the life assured's death. Here are a few types of
nominees:

1. Beneficial Nominees
In accordance with the law, the beneficiary of the claimed benefits will be any
immediate family member nominated by the policyholder (like a spouse,
children, or parents). Beneficiary nominees are limited to immediate family
members of the beneficiary.

2. Minor Nominees
It is common for individuals to name their children as beneficiaries of their life
insurance policies. Minor nominees (under the age of 18) are not allowed to
handle claim amounts. Hence, the policyholder needs to designate a
custodian or appointee. Payments are made to the appointee until the minor
reaches the age of 18.

3. Non-family Nominees
Nominees can include distant relatives or even friends as beneficiaries of a
life insurance policy.

4. Changing Nominees
It is okay for policyholders to change their nominees as often as they wish, but
the latest nominee should take priority over all previous ones.

Key Points to Note About Nomination

In regards to the nomination, the following points should be noted:

• In order to nominate, the policyholder and life assured must be the

same.
• In the case of a different policyholder and life assured, the claim
benefits will be paid to the policyholder.
• Nominations cannot be changed or modified.
• The policy can have more than one nominee.
• As part of successive nominations, if the life assured appoints person
“A” as the first person to receive benefits. Now, in the event of the life
assured’s death after person “A” dies, the claim benefits will be given to
person “B”. The benefits will be available to Nominee “C” if Nominee “A”
and Nominee “B” have passed away.
Q.

ANS:

Marine insurance is concerned with overseas trade. International

trade involves transportation of goods from one country to another
country by ships. There are many dangers during the transhipment.
The persons who are importing the goods will like to ensure the safe
arrival of their goods.

The shipping company wants the safety of the ship. So marine

insurance insures the coverage of all types of risks which occur
during the transit. Marine insurance may be called a contract
whereby the insurer undertakes to indemnify the insured in a
manner and to the extent thereby agreed upon against marine
losses.

Marine insurance has two branches:

ADVERTISEMENTS:

(i) Ocean Marine Insurance

(ii) Inland Marine Insurance.

Ocean marine insurance covers the perils of the sea whereas inland
marine insurance is related to the inland risks on the land. Marine
insurance is one of the oldest forms of insurance. It has developed
with the expansion of trade. It was started during the middle ages in
Italy and then in England. The sending of goods by sea involves
many perils; so it was necessary to get the goods insured. In modern
times marine insurance business is well organised and is carried on
scientific lines.

Lloyd’s Association:
This association has played an important role in marine insurance
in England. During the middle of seventeenth century some persons
used to assemble in coffee houses of London and transact marine
insurance business. They used to transact business in their own
names. One of the coffee houses was owned by Edward Lloyd.

ADVERTISEMENTS:

For the facility of his customers he started publishing a paper called

Lloyd’s News in 1696. This paper contained all types of information
about the movement of ships. The persons who used to assemble in
Lloyd’s Coffee House formed an association called Lloyd’s
Association.

This association provided only the requisite information, but

business was contracted by the underwriters in their own names.
Anybody interested in entering marine insurance business could
become the members of this association. The member’s reputation
and financial position was scrutinised properly. The association
earned a great name in marine insurance and is considered one of
the best organisations in the world even today.

Subject Matter to be insured:

The marine insurance may cover three types of things:
(i) Cargo Insurance:
The person who is importing the goods and the person who is
sending them are interested in the safety of goods during the sea
journey. The goods to be insured are called ‘cargo’. Any loss of
goods during journey is indemnified by the insurance company.

ADVERTISEMENTS:

The goods are generally insured according to their value but some
percentage of profit can also be included in the value. The cargo
policies may be special, reporting and floating. The special policy is
only for one shipment. Reporting or open cargo policy, on the other
hand, covers all shipments made by an exporter over a long period
of time.

The floating policy is just similar to open cargo policy but differs
from it only in respect of the method of paying the premium. In
floating policies the value of the future shipments is estimated and
premium is deposited with the company. Later on, actual shipments
are compared with the estimates and the premium is adjusted.

(ii) Hull Insurance:

When the ship is insured against any type of danger it is called Hull
Insurance. The ship may be insured for a particular trip or for a
particular period.

(iii) Freight Insurance:

The shipping company has an interest in freight. The freight may be
paid in advance or on the arrival of goods. The shipping company
will not get freight if the goods are lost during transit. The shipping
company may insure the freight to be received which is known as
freight insurance.

Principles of Marine Insurance:

Some of the principles related to marine insurance are
given as under:
1. Utmost Good Faith:
ADVERTISEMENTS:

The marine contract is based on utmost good faith on the part of

both the parties. The burden of this principle is more on the insured
than on the underwriter (insurance company). The insured should
give full information about the subject to the insured. He should not
withhold any information. If a party does not act in good faith, the
other party is at liberty to cancel the contract.

2. Insurable Interest:
Insurable interest means that the insured should have interest in
the subject when it is to be insured. He should be benefited by the
safe arrival of commodities and he should be prejudiced by loss or
damage of goods. The insured may not have an insurable interest at
the time of acquiring a marine insurable policy, but he should have
a reasonable expectation of acquiring such interest. The insured
must have insurable interest at the time of loss or damage otherwise
he will not be able to claim compensation.

3. Indemnity:
This principle means that the insured will be compensated only to
the extent of loss suffered. He will not be allowed to earn profit from
marine insurance. The underwriter provides to compensate the
insured in cash and not to replace the cargo or the ship. The money
value of the subject matter is decided at the time of taking up the
policy. Sometimes the value is calculated at the time of loss also.

ADVERTISEMENTS:

There is one exception to the principle of indemnity in marine

insurance. Some profit margin is also allowed to be included in the
value of the goods. The assumption is that the insured will earn
profit when goods reach at their destination.

4. Cause Proxima:
This is a Latin word which means the nearest or proximate cause. It
helps in deciding the actual cause of loss when a number of causes
have contributed to the loss. The immediate cause of loss should be
determined to fix the responsibility of the insurer. The remote cause
for a loss is not important in determining the liability. If the
proximate cause is insured against, the insurer will indemnify the
loss.

Q.

ANS:

Property Insurance: A Comprehensive Overview

Property insurance is a legal contract between the insurer and the policyholder. It provides cover
to the property owner from several kinds of unforeseen incidents such as theft, burglary, natural
calamity, fire accident, etc1. The primary purpose of property insurance is to provide financial aid
for the loss or damage and a sense of security1.
Types of Property Insurance
There are various types of property insurance available, each catering to different needs and
circumstances23:
1. Homeowner’s Insurance: This is the most common type of property insurance. It
protects the owner of housing properties from incurring financial losses in case of any
untoward incident3.
2. Renter’s Insurance: This type of property insurance is exclusively meant to cover a
tenant’s personal belongings stored inside his/her rented house 23.
3. Commercial Property Insurance: This type of property insurance is meant to protect
commercial properties, such as offices, warehouses, shops, restaurants, factories etc 3.
4. Natural Disaster Insurance: A special type of property insurance, secures a property
against perils such as earthquake, hurricane, storm, flood, cyclone etc 3.
5. Fire Insurance: Fire insurance is a special type of property insurance that provides
coverage against accidental fires and allied perils, including explosion, implosion,
lightning, impact damage etc3.

Insurance for Loss Due to Criminal Act

Third-party crime coverage will protect your business if it suffers direct losses due to criminal
activity carried out by someone outside your company 4. This means that a peril of loss to one’s
property on account of a criminal act of a third party can indeed be insured. However, it’s
important to note that insurance fraud, which involves making false insurance claims in order to
obtain compensation or benefits to which they are not entitled, is considered a serious crime 5.
In conclusion, property insurance is a crucial safeguard for property owners and renters alike. It
provides financial protection against a wide range of potential damages and losses, ensuring
peace of mind for policyholders. Whether you’re a homeowner, a renter, or a business owner,
there’s a type of property insurance designed to meet your specific needs.

Q.

Ans:

Compulsory Insurance under Personal Injuries (Compensation

Insurance) Act, 1963
The Personal Injuries (Compensation Insurance) Act, 1963, is an Indian legislation that imposes a
liability on employers to pay compensation to workmen who sustain personal injuries during the
course of employment1. The Act also provides for the insurance of employers against such
liabilities1.

Compulsory Insurance
Section 9 of the Act provides for compulsory insurance23. Every employer of workmen to whom
this Act applies, except an employer whose total wages bill for any quarter after the
commencement of this Act has never exceeded fifteen hundred rupees, shall take out a policy of
insurance issued in accordance with the Scheme2. This insurance ensures that the employer is
insured until the expiry of the period of the emergency or until the date, if any, prior to the expiry
of the period of the emergency at which he ceases to be an employer to whom this section
applies, against all liabilities imposed on him by this Act2.
The Act applies to every employer or workman entitled to compulsory insurance 4. However, after
the commencement of the Act, it specifies that the wages of the workman should not exceed
fifteen thousand rupees4.
In conclusion, the Personal Injuries (Compensation Insurance) Act, 1963, ensures that employers
are legally obligated to compensate their employees for any personal injuries sustained during
the course of employment. It also mandates employers to take out insurance policies to cover
these potential liabilities, providing a safety net for both employers and employees.

Q.

Provisions of Motor Vehicle Act Regarding Third Party Insurance

The Motor Vehicles Act, 1988, is a comprehensive act in India that regulates all aspects of road
transport vehicles1. The Act mandates that every vehicle should have a valid third-party insurance
at all times1.

Third Party Insurance

Third-party insurance is compulsory for all vehicle owners as per the Motor Vehicles Act 2. It
covers only your legal liability for the damage you may cause to a third party – bodily injury,
death, and damage to third party property – while using your vehicle2. Third-party insurance does
not pay for repair of damage to your vehicle 2.

Legal Provisions
The Act under section 146 states that all motor vehicles must not utilise any vehicle in public
without legitimate third-party insurance3. The Act seeks to protect the interests of third parties,
but not the insurers, or the insurance companies themselves 4.

Beneficiary of Third-Party Insurance

The beneficiary of third-party insurance is the injured third party4. The premiums do not vary with
the value of what was insured4. The best example of this would be Motor Vehicle insurance,
where the claim of the driver who is not insured is provided with coverage, despite not being
covered under an insurance policy4.
Salient Features of Third Party Insurance
Third-party insurance is mandatory for all motor vehicles 3. The Act seeks to ensure that a third
party must not bear the brunt of failed insurance premium payments by the insured 4. What is to
be noted is the fact that a third party can seek damages only against those offences that have
been enumerated in the Act4.
In conclusion, the Motor Vehicles Act, 1988, makes it mandatory for every vehicle owner to have
a valid third-party insurance. This insurance covers the legal liability of the insured towards the
death or disability of the third party or damage to third party property.
Contributory Negligence
Contributory negligence is a legal concept that comes into play when the plaintiff, through their
own lack of care, contributes to the damage caused by the negligence of the defendant 1. In such
cases, the plaintiff is considered to be at fault1.
For example, if a person is driving a car without brakes and meets with an accident with another
person who was driving on the wrong side of the road, this results in contributory negligence 1.
Another example is a car driver who does not wear a seat belt. Not wearing the seat belt does
not cause the accident, but it contributes to the damage – the injury2.

Composite Negligence
Composite negligence refers to a situation where the negligence of two or more persons results
in the same damage to a third person 3. In the case of composite negligence, each wrongdoer is
jointly liable to the injured party for payment of the entire damages, and the injured person has
the choice of proceeding against any or all of them 3.
For instance, consider a scenario where a pedestrian is crossing the road at a designated
crosswalk. A car driver, distracted by their phone, fails to stop at the crosswalk, while at the same
time, a motorcyclist, speeding and ignoring the traffic signal, also approaches the crosswalk. Both
the car driver and the motorcyclist hit the pedestrian, resulting in injuries. This is an example of
composite negligence, as both the car driver and the motorcyclist were negligent, leading to the
same damage to the pedestrian3.
In conclusion, both contributory and composite negligence involve situations where negligence
leads to harm or damage. However, in contributory negligence, the injured party also shares
some of the blame, while in composite negligence, multiple parties are at fault for the same
damage to a third party.

Q.
Life Insurance
Life insurance can be defined as a contract between an insurance policy holder and an insurance
company, where the insurer promises to pay a sum of money in exchange for a premium, upon
the death of an insured person or after a set period 1234.

Principle of Causa Proxima

The Principle of Causa Proxima, or Proximate Cause, is one of the fundamental principles of
insurance. It deals with the most proximate or nearest or immediate cause of the loss in an
insurance claim5. The proximate cause needs to be the first cause or the last, but it is defined as
the cause that is most active in bringing forth a result 5. Therefore, if the proximate cause of a loss
is a known insured risk, for which the insurer has to pay the insured, then the insurer is liable to
pay the compensation to the insured 5. However, in case of life insurance, the principle of Causa
Proxima does not apply6. Whatever may be the reason of death (whether a natural death or an
unnatural death) the insurer is liable to pay the amount of insurance 6. . This principle was also
highlighted in the case of Branch Manager, Bajaj Allianz Life Insurance Company
Ltd and Others Versus Dalbir Kaur2.

Principle of Subrogation
The principle of subrogation in insurance enables the insurer to take over the policyholder’s legal
right to recover damages7. In other words, the insurance company has the right to pursue any
third-party liable for the damages that it has paid out to the policyholder 7. However, the principle
of subrogation is not applicable to life insurance contracts 8. This is because the life insured
cannot suffer a loss more than once and the life or health of a human being cannot be
compensated for with money8.

Insurer’s Liability in Case of Suicide

If the insured commits suicide within 12 months of the policy issue or revival, the nominee is not
entitled to receive full death benefits, but the insurer may just pay the nominee a benefit that
equals to a certain percentage of premium paid during the policy term by the policy holder 9. An
insurance company may be held liable in case of a suicide only after the passage of a certain
period of time, in our case, two years after its issue under the Amended Insurance
Code1011. Hence, if an insured commits suicide within a period of two years after the issuance of
the policy, the insurer shall not be liable

Q.
Historical Development of Law of Insurance in India

The history of insurance in India can be traced back to ancient times, with
references found in scriptures and writings such as Manusmriti, Arthashastra, and
Dharmasastra12. These texts mention a system similar to modern insurance, where
resources were pooled and redistributed during calamities12.

The formal development of insurance law in India began with the establishment of
British firms. The Oriental Life Insurance Company was established in Calcutta in
1818, followed by the Bombay Life Assurance Company in 1823, and the Madras
Equitable Life Insurance Society in 182912345.

The British Insurance Act was enacted in 1870, marking significant growth in the
insurance sector in India12. The number of insurers in the life insurance business
saw a steep increase from around 40 to 180 companies, with capital increasing
from 22 crores to 298 crores in the market in the 1930s1.

The Indian Life Assurance Companies Act was enacted in 1912, followed by the
Indian Life Insurance Companies Act of 19281. The Insurance Act of 1938
consolidated laws relating to the life insurance business in India1.

Relevant Entries in the Constitution of India Pertaining to Insurance

Insurance is listed in Entry 47 of the Union List in the Seventh Schedule to the
Constitution of India6. This means that it can only be legislated by the central
government6. However, there are also entries in the concurrent list that confer
concurrent powers to both the union and the state governments to legislate in the
areas of insurance6.

There is no specific Article making direct provision for insurance, but the essence
of insurance as a social device is found under various provisions of the
Constitution peripheral to the various legislations dealing with insurance6. The
Preamble to the Constitution of India incorporates the expressions like ‘economic
justice’, ‘social justice’ and ‘fraternity assuring the dignity of individuals’6. Also,
in PART IV of the Constitution dealing with the directive principles of state
policy, insurance aspects are found under Articles 38, 39, and 426.

In conclusion, the development of insurance law in India has been a gradual

process, starting from ancient times and evolving through the British era to the
present day. The Constitution of India provides for the regulation of the insurance
sector, ensuring economic and social justice.
Q.

Contractual Principles Applicable to Insurance

Insurance contracts, like any other contracts, are governed by the general principles
of contract law. However, they also have specific principles that are unique to
insurance contracts123. Here are some of the key principles:

1. Utmost Good Faith (Uberrimae Fidei): Both the insurer and the insured
must disclose all material facts honestly and accurately123.
2. Insurable Interest: The insured must have a legitimate interest in the
preservation of the life or property insured123.
3. Indemnity: The insurer promises to compensate the insured for the loss
suffered, up to the amount insured123.
4. Proximate Cause (Causa Proxima): The loss of the insured property
should be caused by the insured peril123.
5. Subrogation: After compensating the loss, the insurer steps into the shoes
of the insured to recover the loss from the third party responsible for the
loss123.
6. Contribution: If the insured has more than one insurance policy, each
insurer contributes equally in the event of loss123.
7. Loss Minimization: The insured must take all necessary steps to minimize
the loss to the insured property123.

Is Insurance a Standard Form Contract?

Yes, insurance is typically a standard form contract, also known as an adhesion

contract45. This means that the terms and conditions are set by the insurer, and the
insured has little or no ability to negotiate them45. The insured can either accept the
contract as it is or reject it, but cannot change its terms45. This is because insurance
contracts are designed to cover a wide range of risks and situations, and it would
be impractical for insurers to negotiate each contract individually45.

Q. STATE THE SALIENT FEATURES OF INSURANCE ACT 1938.

ANS:
The Insurance Act, 1938, is a significant legislation in India that was introduced to regulate the
activities of insurance companies 12. Here are some of the salient features of the Insurance Act,
1938:
1. Department of Insurance: The Act led to the formation of a Department of Insurance to
supervise and control the insurance business 1.
2. Mandatory Registration: It made the registration of insurance companies compulsory 1.
3. Annual Financial Returns: Insurance companies were required to submit annual financial
returns1.
4. Initial Deposits: A provision for initial deposits was made to allow only genuine
companies in the insurance sector 1.
5. Standardized Policies: Policies with a standardized format were introduced 1.
6. Certification of Premium Tables: Certification of the premium tables through an actuary
was made compulsory1.
7. Periodical Evaluation: Insurance companies had to go through a periodical evaluation to
assess their financial stability1.
8. Prohibition on Rebate: The Act introduced important provisions such as the prohibition
on rebate, restriction on licensing, and commission payment to instill professionalism into
the business1.
The Insurance Act, 1938, provided a broad legal framework within which the insurance industry
operates2. It was the first comprehensive legislation passed by the government that governed
both life and non-life companies providing strict control over the insurance business 12

Q. Q.

DISCUSS THE DUTIES, POWERS AND FUNCTIONS OF IRDA

The Insurance Regulatory and Development Authority of India (IRDAI) is a

statutory body formed under the IRDA Act, 199912. Its primary function is to
regulate and promote the insurance and re-insurance industries in India12. Here are
some of the key duties, powers, and functions of IRDAI:

Duties of IRDAI
1. Regulating Insurance Companies: IRDAI is responsible for issuing,
renewing, modifying, withdrawing, suspending, or cancelling registrations
of insurance companies12.
2. Protecting Policyholders’ Interests: It ensures the protection of the
interests of policyholders in matters concerning assigning of policy,
 nomination by policyholders, insurable interest, settlement of insurance
claim, surrender value of policy, and other terms and conditions of contracts
of insurance12.
3. Licensing and Establishing Norms for Insurance Intermediaries: IRDAI
provides licenses to insurance intermediaries such as agents and brokers
after specifying the required qualifications and setting norms/code of
conduct for them12.

Powers of IRDAI
1. Regulation of Rates, Advantages, Terms, and Conditions: IRDAI has the
power to control and regulate the rates, advantages, terms, and conditions
that may be offered by insurers in respect of general insurance business12.
2. Regulation of Investment of Funds: IRDAI regulates the investment of
funds by insurance companies12.
3. Levying Fees and Other Charges: IRDAI has powers for levying fees and
other charges for carrying out the purposes of the IRDA Act12.

Functions of IRDAI
1. Promoting Efficiency in the Conduct of Insurance Business: IRDAI
promotes efficiency in the conduct of insurance businesses12.
2. Promoting and Regulating Professional Organisations: IRDAI promotes
and regulates professional organisations connected with the insurance and
re-insurance business12.
3. Calling for Information and Undertaking Inspection: IRDAI has the
authority to call for information from, undertake inspection of, conduct
enquiries and investigations including audit of the insurers, intermediaries,
insurance intermediaries, and other organisations connected with the
insurance business12.

In conclusion, IRDAI plays a crucial role in the insurance sector in India, ensuring
its orderly growth and protecting the interests of policyholders12.

Q.
Main Features of an Insurance Contract

An insurance contract is a legal agreement between two parties, the insurer and the
insured, where the insurer promises to compensate the insured for specific
potential future losses in exchange for a premium12. Here are some of the main
features of an insurance contract:

1. Offer and Acceptance: The insurer makes an offer which the insured
accepts2.
2. Consideration: The premium paid by the insured is the consideration2.
3. Legal Capacity: Both parties must be legally capable of entering into a
contract2.
4. Consensus “ad idem”: Both parties must agree on the terms of the
contract2.
5. Legality of Object: The purpose of the contract must be legal2.

How an Insurance Contract Differs from an Ordinary Contract

While an insurance contract shares many characteristics with an ordinary contract,

there are several key differences34:

1. Aleatory: Insurance contracts are aleatory, meaning the insurer’s obligation

to pay depends on the occurrence of a specific event34.
2. Adhesion: Insurance contracts are contracts of adhesion, meaning the
insured has little or no ability to negotiate the terms34.
3. Unilateral: Insurance contracts are unilateral, meaning only the insurer
makes a legally enforceable promise34.
4. Personal: Life insurance contracts are personal contracts between the
insurer and the insured34.

Essentials of an Insurance Contract

In addition to the general elements of a contract, an insurance contract has several

unique essentials2:

1. Utmost Good Faith (Uberrimae Fidei): Both parties must disclose all
material facts honestly and accurately2.
2. Insurable Interest: The insured must have a legitimate interest in the
preservation of the life or property insured2.
3. Indemnity: The insurer promises to compensate the insured for the loss
suffered, up to the amount insured2.
 4. Subrogation: After compensating the loss, the insurer steps into the shoes
of the insured to recover the loss from the third party responsible for the
loss2.
5. Proximate Cause: The loss of the insured property should be caused by the
insured peril2.

In conclusion, while an insurance contract shares many characteristics with an

ordinary contract, it also has unique features and essentials that set it apart.

Q.