Contract of insurance may be looked upon as a special type of contract between two parties called ‘the insurer’ and ‘the insured’. In this contract ‘the insurer’, for a premium, undertakes to pay to the ‘insured’ a fixed amount of money on the happening of certain event. Since it is a contract, it has to satisfy or meet all the requirements of a valid contract laid down in section 10 of the Indian Contract Act 1872, which states that, “all agreements are contracts, if they are made by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not expressly declared to be void.” Therefore, like all other contracts a contract of insurance shall also meet the following requirements:
agreement (offer & acceptance)
free consent of the parties
parties must be competent to contract
there must be lawful consideration
the object must be lawful
it should not be expressly declared to be void
Further, contract of insurance should be based on the principles of insurance, specifically speaking the legal principles of insurance discussed earlier. In India, the contract of insurance should further comply with provisions of the Insurance Act 1938, regulatory provisions of Insurance Regulatory & Development Authority Act, 1999 and the Indian Stamps Act 1899.