(a) Explain the term “risk” in insurance.
(b) List and explain five features of insurance contracts.
Explanation
(a) Risk in Insurance may be Defined in any of the Following Ways:
(i) It is an uncertainty of loss.
(ii) It is a possibility of loss.
(iii) it is a combination. of the possibility of occurrence of an undesired outcome (loss, and its consequences).
(iv) It is used, to describe the perils insured.
(v) It is used to describe the.subject matter of insurance
(vi) it is used to .describe liability undertaken by the insurer.
(vii) It is the dangers, individuals are 'likely to face in their -day-tO-day activities.
(b) Features of Insurance Contract:
(i) Legality.
(ii) Aleatory.
(iii) .Warranties.
(iv) Insurable interest.
(v) Utmost good faith.
(vi)Adhesion.
(vii) Personal contract.
(viii)Acceptance.
(ix) Consideration.
(x) Intention to create 'legal relations/obligations
(xi) Offer.
(xii) Contractual capacity.
(i) 'Legality: This relates to the basis or the contents of the contract which must•be lawful otherwise it-would be treated as illegal. contract.
(ii) Aleatory: Insurance contract is aleatory because an insured may collect a large amount or nothing in return for the premium paid. in an ordinary contract, the amounts to be exchanged are .intended to the roughly equal.
(iii) Warranties: Warranties are known as certain things which the insured undertakes that shall or shall not,be done, or certain state of affairs that must.or must not exist. It is a fundamental condition in insurance and any breach, whether material or not is sufficient to discharge the insurer from liabilities.
(iv) Insurable Interest: It is the legal right to insure arising out of the financial relationship between the insured and the subject matter of insurance which is recognized at law. There is no valid insurance contract if there is not insurable interest,
(v) Utmost Good Faith: This implies that the two parties to the insurance contract should tell each other willingly all the truth they know about the Contract. It is all about being honest and transparent.
(vi) Adhesion: This is .a fundamental feature of insurance contract which says that the insurance company should write the contract and the insured must either take it or leave it. Simply put, the insured which is the receiving party does not have the option of negotiating, revising or deleting any part or provisions of the contract.
(vii) Personal Contract: insurance is a personal contract because it is an agreement between the insurer and the insured and it is • not transferrable (except in life.and marine insurance) without the consent of the insurer.
(viii) 'Acceptance: This is when an insurer agrees to receive a person's application for insurance.
(ix) Consideration: In insurance, the insurance company's offer to make a loss good is a consideration in exchange for payment of premium by the insured.
(x) Intention to Create Legal Relations/Obligation: A valid contract must be supported with an intention that supports the existence of a legal relations.
(xi) Offer: An offer in insurance is a proposal to buy a policy from an insurer. An offer generally may be made