Contract of Insurance
is a contract whereby one party (called ‘the insurer’) in consideration of a price, known as premium, agrees to indemnify or pay a sum of money to another person (known as ‘the insured’) upon the happening of a loss or misfortune.
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A contract of insurance
may be written or oral, and will remain valid and enforceable as long as it contains all the essentials of a contract.
How The Essentials Of A Contract Can Fit Into An Insurance Arrangement
- The Offer
What usually transpires in an insurance contract is that the prospective insured makes an offer by filling the standard proposal form, which he/she gets from the designated insurance agents, and submitting it to the insurer. Hence, in a typical insurance contract, the insured is the offeror.
The submission of the proposal form which in any other contract of insurance would have constituted an offer will amount to an invitation to treat in a life assurance
arrangement, and the real offer moves from the insurance company which usually requires the prospective insured to meet certain conditions, including a compulsory medical examination.
- The Acceptance
Depending on the method by which the offer was made, acceptance can be effected by the acceptance of premium (where an offer is made by the insured), payment of premium (where an offer is made by the insurer), acceptance of proposal form by the insurer, or by any other means indicating an unequivocal assent to the terms of the offer.
Nevertheless, a purported ‘acceptance’ may, in some instances, constitute a counter-offer that terminates the initial offer and replaces it as the only offer available to be either accepted or rejected.
Hence, an initial offeror may end up being the offeree. For example, where the premium is presented by the prospective insured after a change in circumstance has occurred, thereby altering the nature of the risk from that contemplated by the parties.
The acceptance must be unconditional for it to constitute a valid insurance contract. Silence will usually not suffice as acceptance except in situations that it will amount to acceptance by conduct. Also, if actual performance will amount to acceptance, then communication of acceptance may be waived.
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- The Premium
As with every other contract, a contract of insurance is not valid unless consideration is furnished. The premium is the periodical fee paid by the insured as consideration for the insurance cover. Hence, consideration can be future, executor or executed, and the prior payment of the premium is not a prerequisite to the formation of a valid contract of insurance.
Parties To A Contract Of Insurance
- The Insurer: an insurer must be either an incorporated company or a body established by or pursuant to enactment for that purpose. Hence, an individual cannot commence or carry on the business of insurance in Nigeria. Only juristic persons may be insurers.
- The Insured: this is the party responsible for paying the premium and entitled to receive payment upon the occurrence of the loss insured against. The insured may also assign third parties to recover payment in the event of loss; this is especially true in life assurance arrangement.
- The Insurance Agent: this is an intermediary between the insurer and the insured. The proposal form is normally obtained from the agent and they oversee the collection of the premium and remission of same to the insurer.
- The Insurance Broker: they perform similar functions to an insurance agent and generally act as a middleman to sell insurance policies to the insured on behalf of the insurer.
While the insurance agent usually acts on behalf of the insurer to ‘bring in’ business from prospective policyholders, the insurance broker usually acts on behalf of the (prospective) insured to advise on different aspects of the insurance contract. The role of the agent is mainly administrative, while that of the broker is more substantive, containing advisory and related functions.
Owing to the diverse nature of business practices today, commercial actors need to enter into agreements to ensure that the risks they face in the course of their business activities are duly covered. This way, they can go about their business without the fear of substantial loss.
Insurance business is therefore important to ensure that business owners and potential investors in the Nigerian economy can do business in Nigeria with little or no worry as to the losses that may occur.
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This article was first published on 14th April 2021