What Is Insurance?

Insurance: Human life is exposed to many risks, which may result in heavy financial losses. Insurance is one of the devices by which risks may be reduced or eliminated in exchange for premium. In words of Chief Justice Tindal, "Insurance is a contract in which a sum of money is paid by the assured in consideration of the insurer's incurring the risk of paying larger sum upon a given contingency.

In this legal aspect it is a contract whereby one person agrees to indemnify another against a loss which may happen or to pay a sum of money to him on the occurring of a particular event. All contracts of insurance (except marine insurance) may be verbal or in waiting; but practically contracts of assurance are included in a document.

Some principles of insurance: The following are the basic essentials or requirements of insurance concerned.
1. Utmost good faith. All types of contracts of insurance depends the contracts of utmost good faith. Both parties (insurer and the insured) in the contract must disclose all material facts for the benefit of each other. False information of non-disclosure of any important fact makes the contract avoidable. So the conditions to show utmost good faith are very strict on the part of the insured.

2. Insurable interest. The insured must possess an insurable interest in the object insured. It may be defined as a financial interest in the subject matter of contract. The presence of insurable interest is a legal requirement. So an insurance contract without the existence of insurable interest is not legally valid and cannot be claimed in a Court. The object of this principle is to prevent insurance from becoming a gambling contract.