The importance and purpose of insurance contracts
13 min readWith the world becoming a global village today and the increase in commercial transactions, Insurance contracts emerge the most important instrument in saving the business world from drowning into an unsafe pit. Since the world is advancing both in social, political and commercial issues, the risk of doing business is also advancing and becoming more and more frightening to the individuals and business organizations. What is of more interest here is that the insurance policy contracts cut across all sectors in life as far as a human being is concern. The general insurance contracts is for the protection of every risk in life. But this risks are classified into two brought classes, that is the non-life insurance policy contracts and life insurance policy contracts. The non-life insurance policy contracts are like the accident insurance contract, fire insurance contract, motor insurance contract etc. whereas the life insurance policy contracts deal with the after death activities or the effect of the death on love ones in the family of the decease. Thus entering into a life insurance contracts guarantee the safety of your family after death. The fact that insurance contract covered both the non and life risk of human beings in our society makes it an important organization worth to be appreciated. Therefore, the insurance contract is defined as a contracts in which one party known as the insurer agrees to keep the contractual liability insurance agreement, that is to carry the risk of and to indemnify or compensate the other person called the insured whom in return must pay charges to the insurance company called a premium. Though because of the vast occurrence of accidents and risk due to uncontrollable happenings, many actors in the field are becoming so afraid of investing in insurance contracts. It is important to note that the contractual liability insurance agreement lies but in the hands of the insurer or insurance company to compensate the victim but the insurer can also become bankrupt like any other company.
For an insurance contract to be valid per se, there must be the fulfillment of some essentials which are both for general contractual agreement and the insurance contract in particular such as offer and acceptance, intention to create a legal relationship, consideration, validity of object and the certainty of the terms. Fulfilling these essentials conditions makes the contractual agreement to be valid. For example, for the contract to exist, there must be offer from one party in which in return, there must be acceptance from the other party thus leading to a consensus between the two parties. The acceptance by one party must not be by duress or by force. This means that all the parties must give their consent. When both parties must have consented, they will now follow the procedure or the formalities according to the contractual agreement. Within the contractual agreement, the parties must be of mature age and have the capacity to contract as per the general contract rules and regulation governing the state in which you find yourself. Then the parties will now go in and check the legality of the object which is to be insured against. After the agreement, both parties will now have the agreement into writing while setting the terms for the contractual agreement.
Hence since general insurance contracts are necessary for the wellbeing of the fast growing population in every society, we need to remember and study it
The importance of insurance in our society
The promotion of economic growth
Since the insurance policy contracts wipe away fear of risk from the investors in our society, there is an economic growth and there is more investment in the society in which we find ourselves.
This growth is by the help of the general insurance contracts because the population is more safe from both the commercial political and social problems. For example, when somebody entered into an insurance contract like motor insurance and the risk of accident and also entered into a life insurance contracts, he or she will be protected in all angles thus leading to the economic growth. Insurance contract plays a crucial role when it comes to economic activities also because it enables the investors to borrowed money from the bank and invest and also the insurance helps the bank to give out money since they know that if their client is having like an accident and he is insured in the insurance company he or she will be compensated
Also the general insurance contracts contribute in the economy by creating funds through premiums to the government’s coffers. This funds are always use in boosting the financial conditions of a country in question through securities and stock. Because of this boost, the social status of the citizens in the country are also improve through employment opportunities.
There is also a guarantee of security and safety in our economy when we engage in general insurance contracts because there is the reduction of uncertainty of risk patterning to success in the business environment. With insurance there is no shock when it comes to sudden lose in the business because the company has covered the risk in exchange of premium paid.
With insurance contract there is a spread of risk
An individual cannot when he or she is registered in an insurance company suffer a risk alone. This is in the sense that once you are registered into that company, you automatically consented that your premium should be use in solving other people’s problems when you are having no problem. And that when you have a problem the premium of others should also be used to solve your problem.
The world is becoming a global village where people are now connected and live like brothers and sisters in the same home because of technology and the more advance organizations like the insurance company. Thus because the people are now connected especially with the advance use of the general insurance contracts and policies, people ought to share happiness and risk so that our relationships be tightened and also to achieve our goals
General insurance contracts protect life and social illness in our society
Life is too short and people failed to understand the importance of it when they are not educated about the effect of dying early living back children or people whom you are taking care of. But with the advancement of the insurance company into insuring that people’s death should not have effects on others whom most of the victims are minors who depend on the decease. There are different categories of life insurance contracts that is the permanent and temporal life insurance contracts or also referred to as assurance. Thus when life is insured temporary or permanently, the social illnesses are reduced like the effects of death on minors
Also, life insurance contracts in particular help in the domain of health since people can insure against diseases. This fact equipped the people with confidence of going to the hospital when they are sick even in times of financial worries. Being relief of the financial difficulties when somebody is sick improve our psychological order with happiness and fresh minds which also lead to long life
Generally, investing in insurance contracts normally encourages the population to plan for their future expenditure by making them save money for future used. This is because there is always the section for the periodical contributions by the individuals and companies. These contributions are to target the time when the workers are retired or for individuals who are self-employed when they most have tired. Hence advancing the social life of individuals and reducing the social ills.
For somebody to enjoy and really feels the importance of insurance he must follow the procedures and fulfill some important ingredients of the contractual liability insurance.
These ingredients are that there must exist a specified event to be insured against and this specified event must be uncertain. For example, if you want to ensure against an event in life, it must either be against life, sickness or future financial problems. When the events most have been identified like to ensure against life provided you have an accident and die before you can be compensated, if you died through a different means, you will not be compensated by the insurer
After the agreement, the person to be compensated when the uncertain event happen will then pay an amount called a premium in exchange of the risk insured against. The premium will be determine by the circumstances surrounding the occurrence of the risk
Also, for somebody to enjoy the indemnity from the insurance company, the specified event insured against must be the one that when it occurs the insurer will lose and the insured or the victim will benefit. That means that at the occurrence of the said event, the risk must have been transferred from the insured to the insurance company either permanently or temporally after the payment of the premium
The agreement will then be documented and the insurer must promise to pay to the insured the specified amount of money upon the happening of the event. The document will now be legally binding between the insurer and the insured. This legally binding document will be obligatory for the insurance company to pay the amount specified. Since every in situation there is always an exception to it, the agreement will not be binding if the event insured against happens as a result of the natural disaster like earthquake, volcanic eruption etc.
The purpose of insurance contracts
Though many people turn to looked at the insurance contract with the eye of a bad man because their philosophical mind is always to the fact that it is an additional expenditure to the product which one has already paid. This is in fear of uncertainty in the happening of the event which will be in the detriment of the person seeking the registration. Because of this philosophical minds of some individuals in our society, there is a serious drawback of people getting registered in the insurance policy companies in the society we find our selves
Some people are also having a primitive mine that going in for an insurance policy like life insurance, it will means inviting death upon one’s self. This is also one of the challenges facing by the people investing in insurance contracts. Thus it is very difficult to cajole this type of people to go in for the registration of insurance policy
There is also a gross mentality in the minds of the population to the fact that the risk to be insure against may never happen and this give way for the justification of them not registering in the insurance co of the companies
Because of the above different philosophical minds of the various groups of individuals in the society, some companies have made in a way that when somebody is employed in their company, that person will automatically be registered in the insurance company. To also reduce that mentality, most of the government around the world have come up with compulsory insurance policies in the sectors which the government deems necessary for the wellbeing of the people such as compulsory motor insurance policy. The actors in the insurance policy field have also been doing their own by educating and softening the hearts of the population toward the purpose or the reasons why it is important for someone to be insured against the uncertain risk which may lead to severe loses
The protection of large risk
The rapid increase in population and the social problems merging together with the rise in risk from day to day in our society have drawn the attention of many investors to till toward investing in insurance contracts. A registered person in the insurance company is free and feel protected by the company in question since the agreement is legally binding between the insurer and the insured. Thus investing in insurance contracts will help a lot in our society since it will reduce fear and also protect the people from suffering the occurrence of risk alone when the same registered persons actually respect the terms of the contractual liability insurance contracts. The respect of these terms will give way for the insurer to be able to compensate the insured at the event of the occurrence of risk
The protection of risk in a larger scale around the world is related to the protection of homes, the protection of cars and the protection of health. With the above mention domain in which most people focus or concentrate in going in for the registration of the contractual liability insurance, is the areas which one who is serious and caution about the conditions of life cannot even hesitate to go in for. For example, if your home got burnt it will be very difficult for you to just recovered from the shock and built the house back without any support from someone else. But with the aid of the insurance company you are free from waiting for the uncertain help from the unknown friend. The victim of the risk only need to follow the procedures and obtain the compensation from the insurance company since the contractual agreement is legally binding.
it is worthy to note that when the risk occurs and you seek the attention of the insurer, the company will still need to do a follow up and confirm whether the risk is worth to be compensated by the company patterning to the contractual liability insurance agreement.
Protection against sudden illness
When there is an occurrence of may be a sudden decease when you are a worker, the question always arises whether you will be protected when you are at home while in a sick bed. To answer this question one need to be registered in the insurance company so that by the time you are at home in the sick bed the insurance will take care of you. Hence the insurance company is in existence to limit the suffering of the sudden illness or accident when you are worker or any other person because they will always take care of you when you are sick not feeling up to standard.
Also, the reason for the existence of the insurance company is to protect life through health problem. Being alive and healthy is the most expensive issue to take care of when it comes to financial issues. When there is the lack of health plan or the lack of health coverage, the life will always be threatened because there is uncertainty of where to go when there is an accident or an unexpected illness in the midst of other financial problems
The reason for the existence of the insurance company is also to offer business personnel’s the ability to grow
This insurance company is also a business company which at most of the time is being effective when it is run by a government body. One of the prime factor behind the creation of these companies is to ensure that the entrepreneurship of the country in question is well manage up to the standard. This is usually done through the absorption of the larger uncertain risk which may likely occur due to uncontrollable forces. For example, the insurance will cover the risk of a young man who is still starting the business against the fire incident which may likely come and consume the whole of his or her capital. In giving the protection to this young and energetic man against fire incident, will means a lot to other young men who will like also to join the business in which the protected man is doing since there will not be fear any more in their minds.
For the above reason, the individuals and the government have embarked in investing in insurance contracts so that there should be an improvement in the entrepreneurship of the country or in our societies.
The purpose of the insurance company is also to gain profit
Since the insurance company is also run as a business, one of their purpose as an insurance company is to make profit so that the company can also be able to run the financial affairs when need be. This financial affair are expenses such as the payment of workers. This explain the reasons why if the victim failed to follow the procedure properly, he or she will not be compensated. So must of the insurance companies are out to make profit also from the money they invest into the economy by giving out loans and opening of enterprises to run with part of the profit from the contribution made by the various individuals and companies. From the above view, it is clear that the insurance companies are out to make profit
To indemnify the victims when the risk occurs
The aim of the insurance company is not to stop the occurrence of any risk but to compensate the victim when the risk occurs. This means that before the formation of the company, one of their main purpose is to compensate the victim upon the occurrence of a risk. Therefore, leading to the reduction of large risk and the decrease in the social problems
Points worth to note
The insurance company is not a business that just come up these days but the business that have been in existence for long and have been put into practice in different form. In our society specially in the African society, there are many ways of practicing the applicability of insurance policies. For example, small meetings groups, social and economic organizations, churches and the existence of so many non-governmental organizations which are normally referred to as NGOs these organizations are out to help when there is, especially the risk of life threatening. For example, when there is a meeting group where people gathered to discuss issues of life and also to solve small and immediate financial issues, there is always a little contribution which is keep to help when the member is in urgent need. And also when for example when one of the member is sick or dies the other members will always contribute to support the victim. This is mostly seen but in African setting. This can be seen and evident in the rising need for help patterning to the refugee crisis in must part of the world like in South Sudan, North Nigeria and in the Middle East just to name the few. With the above cited examples, many people have contributed money from all corners of the glob to help the alarming situation in this places for the goods and wellbeing of people though with a little difference that the victims are not paying the premium like in the legal insurance company, it is worth to be in line with the activities of the insurance company. Thus, even though not referred to as insurance companies these organizations are out to do the same activities which the social insurance companies always does
Berinyuy Cajetan is the founder and publisher of Human Rights and Legal Research Centre (HRLRC) since 2017. He has intensive experience in strategic communications for Civil Society Organizations, campaign and advocacy, and social issues. He has an intensive experiencing in human rights monitoring, documentation and reporting.
