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Understanding Insurance Contracts: Key Elements, Types, and Functions

This learning unit delves into the intricacies of insurance contracts, defining crucial terms such as insurer, insured, and premium. It highlights the functions of insurance, including spreading the risk among members and the importance of equitable contributions. The unit offers insights into the formation of contracts, emphasizing the necessity of a written policy that outlines essential agreements. Furthermore, it categorizes insurance into indemnity and non-indemnity contracts, explaining the implications of each for policyholders. Gain a comprehensive understanding of how insurance operates and its relevance in mitigating loss.

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Understanding Insurance Contracts: Key Elements, Types, and Functions

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  1. LEARNING UNIT 7 LAW OF INSURANCE

  2. INSURANCE Contract with one party = INSURER Payment of money = PREMIUM Agrees to indemnify the other party = (INSURED) against loss & pay an agreed amount if an incident arises

  3. DEFINITION • Hansell defines insurance as “a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme”.

  4. FUNCTIONS OF INSURANCE • To spread the loss of all insured members by compensating the unfortunate few from the contributions made by all…. • 2 Elements of equitable contribution to the fund: The more valuable a property = HIGHER PREMIUM The likelihood of a claim being made = will possibly occur in future = HIGHER PREMIUM

  5. LIMITATIONS & CLASSIFICATIONS OF INSURANCE • All risks can’t be insured • Risk according to details in manual page 87 • Insurance can be classified in 3 Main Ways: • By the function it performs (Life Insurance) • By the main classes of business (Marine Insurance) • In terms of prevailing legislation ( Short Term)

  6. FORMATION OF THE CONTRACT • Has to follow common law procedures of a contract • Written document = POLICY • Has all the terms of the contract of your insurance • 5 Essentials has to be agreed on: • The person or property insured • The risk insured against • The amount payable by the insurer if an incident takes place • The amount that is required by the insured • The time frame of the insurance

  7. TYPES OF INSURANCE • Indemnity Insurance Contracts • Non Indemnity Insurance Contracts

  8. INDEMNITY INSURANCE CONTRACTS • Contracts of Suretyships • The insured can recover what has been lost • Includes all insurance against damage to property (fire insurance), Motor Vehicle Insurance • EG. If you take a policy for R2000 against fire in your home and a small fire is in your house but there is no loss then you will not receive ANY PAYMENT • If your loss is R500 then this is what you will receive

  9. NON INDEMNITY INSURANCE CONTRACTS • The insurer will pay a certain amount of money in the event of an incident • No relationship between the nature of the loss and the amount recoverable • EG. Life Insurance, Personal Accident Insurance • Life Insurance has 2 categories • Insurance on One’s Own Life • Insurance on the Life of Another Known

  10. PARTIES TO THE CONTRACT

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