A contract is a legally binding agreement between two or more people.

An insurance contract is a legally binding agreement between the insured and the insured where the former agrees to indemnify the latter against a particular loss.

What is an insurance contract

Any sort of insurance contract can be created, including life insurance contract, automobile insurance contract, and property insurance contract, to mention a few.

An insurance contract normally specifies the agreement's terms and conditions, as well as what is and is not covered by the policy (exclusions).

While each insurance contract is unique, there are seven essential elements of every insurance contract. These are:

1. Intention to create legal relation 

2. Agreement between both parties 

3. Legal capacity and insurable interest

4. Legality

5. No misrepresentation

6. Offer and acceptance.

7. Consideration

Intention to create legal relation

For an insurance contract to be valid, both the insurer and insured must be intent on entering into a legally binding agreement.

Intention to create legal relations is so important that failure to prove intent to enter into a legally binding may nullify the contract.

Agreement between both parties

Both parties to an insurance contract (the insurer and the insured) should have a consensus ad idem.

That is, both parties should agree on the same thing and the same terms. 

This means that insurer should know what the insured wants and the insured should know what the insurer is offering.

In general, the agreement between the insurer and the insured is that the former undertakes to cover the latter against a specified risk in exchange for the premium paid by the insured.

In essence, an insurance contract is a legally binding agreement between the insured and the insurer.

Legal capacity and insurable interest

For an insurance contract to be binding, the parties involved must have the legal capacity to enter into a contract.

In the case of the insurer, if the insurance is lawfully created and has the power to solicit insurance, then it can enter into an insurance contract.

When it comes to the insured, the insured must be of legal age, of sound mind, and not be disqualified by local law.

It is evident from the preceding that a person who is drunk, insane or a minor cannot enter into an insurance contract.

Furthermore, the prospective insured must have an insurable interest for the contract to be legally binding.

A person is said to have an insurable interest if he would suffer loss if the insured object is damaged or lost.

That is, the person entering into an insurance contract must be in the position to suffer loss upon the occurrence of the insured peril.

For example, a person who purchases a life insurance policy for himself has an insurable interest: his family and relatives will suffer financial hardship upon his death.

However, if a person takes a life insurance policy on the life of an unknown person, then the policyholder has no insurable interest and such contract may be declared void


As a legal business, insurance does not concern itself with anything illegal.

Therefore, the object or subject matter of an insurance policy must be legal.

In other words, it should not go against the law; otherwise, it would not be enforceable in a court of law.

For example, insurance on a stolen property is not enforceable in the court of law and such a contract will be declared null and void by the court.

Additionally, the object or subject matter of an insurance policy should not go against the public interest as public interest take precedence over individual interest.

No misrepresentation

A representation is a factual statement that forces one to enter into an insurance contract.

If such statements are false or twisted, it is a misrepresentation.

More precisely, misrepresentation occurs when material facts are suppressed or not disclosed.

To ensure the validity of an insurance contract, there should be no misrepresentation and every material fact must be disclosed.

Indeed, if one of the parties willfully makes a false or misleading declaration, the insurance contract may be ruled null and void.

Offer and acceptance

As previously stated, a valid insurance contract requires an agreement between two parties.

For this to happen, one party must make an offer, which must be accepted by the other party.

Only when an offer is accepted and disclosed to the other party does an insurance contract become legitimate.

As a result, an insurance contract between the insured and the insurer can only exist if an offer is accepted.

An offer is made when one party propose to another party to create a legal agreement between them.

An offer is an expression of willingness to be bound on legal terms.

An offer can be made through letter, email or through your actions.

Although the offer is normally made by the insured, there are times when the insurer will make an offer.

For example, when your current insurance policy expires, the insurance provider may send you an offer to renew it.

In addition, an insurance company may make adjustments to the insured's original offer before returning it to the insured for acceptance. This is referred to as a counter-offer.


Consideration consists of certain benefits accruing to parties to a contract.

It is the act or promise offered by one party and accepted by the other party as the price of his promise.

Consideration converts a mere promise into a contract. It is the 'price of a promise'. Consideration serves as the bargain element of an insurance contract and, therefore, must be taken into account when entering insurance contracts.

In an insurance contract, the premium is the consideration moving from the insured is the insurer while an assurance to indemnify against a loss is the consideration moving the insurer to the insured.

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The consideration for an insured under an insurance contract is


see explanation

In an insurance contract, the consideration for the insured is the compensation that the insurer will pay upon the occurrence of the insured events

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