The Importance and Purpose of Insurance Contracts

With the world becoming a global village and the increase in the commercial transactions, Insurance contracts have become the most important instrument in saving the business world from falling into an unsafe pit. Since the world is advancing in social, political and commercial issues, the risk of doing business is also advancing and becoming more and more frightening to individuals and organizations. What is of more interest here is that the insurance policy contracts cut across all sectors in life as far as mankind is concern.

The aim of the general insurance contracts is for the protection of every risk in life. But these risks are broadly classified into 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 after death activities or the effect of the death of a loved one in the family of the deceased. Thus entering into life insurance contracts guarantees the safety of your family after death. The fact that insurance contract covered both the non life and life risk of human beings in our society makes it an important organization worth appreciation and recognition.

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. Because of the vast occurrence of accidents and risk due to uncontrollable happenings, many actors in the field are becoming afraid of investing in insurance contracts. It is important to note that the contractual liability insurance agreement lies 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 essential conditions makes the contractual agreement 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 ahead to check the legality of the object which is to be insured against. After the agreement, both parties will now put 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

  1. The promotion of economic growth

Since the insurance policy contracts wipe away fear of risk from the investors in our society, there is economic growth and there are more investments in the society in which we find ourselves.

This growth is by the help of the general insurance contracts because the population is safer from commercial, political and social problems. For example, when somebody enters into an insurance contract like motor insurance against the risk of accident and also enters into a life insurance contract, he or she will be protected in all angles thus leading to economic growth. Insurance contracts play a crucial role when it comes to economic activities because it enables the investors to borrow 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 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. These funds are always used in boosting the financial conditions of the country in question through securities and stocks. Because of this boost, the social status of the citizens in the country are also improved 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.

  1. 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 upon registering into that company, you automatically consent that your premium should be used 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 insurance companies. 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 strengthened and also to achieve our goals.

  1. General insurance contracts protect life and social illness in our society

Life is too short and people fail to understand the importance of it when they are not educated about the effect of dying early and leaving 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 who most of the times are minors and depend on the deceased. There are different categories of life insurance contracts. They are the permanent and temporal life insurance contracts or also referred to as assurance. Thus when life is insured temporary or permanently, the social illnesses effects are reduced like the effects of death on minors.

Again, life insurance contracts in particular help in the domain of health since people can insure against diseases. This fact equips people with confidence of going to the hospital when they are sick even in times of financial worries. Being relieved of the financial difficulties when somebody is sick improves our psychological performance and results in 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 needs. 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 must have been tired. Hence advancing the social life of individuals and reducing social ills.

For somebody to enjoy and really feel 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. The event must be identified, like insuring against death provided you have an accident and die before you can be compensated. If you die through a different means, you will not be compensated by the insurer.

After the agreement, the person to be compensated when the uncertain event happens 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 one from whose occurence 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 in every situation there is always an exception, 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

Many people tend to look at the insurance contract with the wrong perspective because their philosophical minds always support the fact that it is an additional expenditure to the product which one has already paid for. This is in fear of uncertainty of the event which will be in the detriment of the person seeking the registration. Because of this philosophical mindset of some individuals in our society, there is a serious drawback to people getting registered in the insurance policy companies in the society we find our selves.

Some people also think going in for an insurance policy like life insurance means inviting death upon one’s self. This is also one of the challenges faced by the people investing in insurance contracts. Thus it is very difficult to convince these people to go in for the registration of insurance policy.

Others justify their unwillingness to register with insurance companies with the fact that the risk they are insuring against may never happen in the first place.

Because of these different philosophical thoughts of various individuals in the society, some companies automatically resister with the insurance company anyone who is employed with them. To deal with the issue, most 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. One of such is compulsory motor insurance policy. The actors in the insurance policy field have also been doing their part by educating the population on the purpose or the reasons why it is important for someone to be insured against the uncertain risk which may lead to severe loses.

  1. The protection against large risk

The rapid increase in population and the social problems coupled with the rise in risk from day to day in our society have drawn the attention of many investors toward investing in insurance contracts. A registered person in the insurance company feels 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 occurrence of the risk.

The protection against risk on a larger scale around the world is related to the protection of homes, the protection of cars and the protection of health. The above mentioned domains with regards to contractual liability insurance are the areas any serious and cautious person would not hesitate getting into. For example, if your home got burnt it will be very difficult for you to just recovered from the shock and build a new house without any support. But with the aid of the insurance company you don’t need to wait for help from anyone which may never come. The victim of the risk only needs to follow the procedures and obtain the compensation from the insurance company since the contractual agreement is legally binding.

It is worthy of 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 compensating for by the company judging by the contractual liability insurance agreement.

  1. Protection against sudden illness

When there is an occurrence of a sudden disease to 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 needs 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 suffering from sudden illness or accident .

Also, the reason for the existence of the insurance company is to protect life through assistance against health problems. 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 about where to go when there is an accident or an unexpected illness in the midst of other financial problems.

  1. 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 is more effective when run by a government body. One of the prime factors 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 and may likely consume his or her entire capital. Giving protection to a young man against fire incident, will mean a lot to other young men who will also like to join the business of the protected man since there will be no fear of risks.

For the above reason, individuals and governments have embarked in investing in insurance contracts so that there should be an improvement in the entrepreneurship of the country or in our societies.

  1. The purpose of the insurance company is also to gain profit

Since the insurance company is 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 includes mainly expenses such as the payment of workers. This explains the reasons why if the victim failed to follow the procedure properly, he or she will not be compensated. So most insurance companies are out to make profits 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.

  1. 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 social problems.

Other Points worth noting

The insurance company is one that came up just recently.The business has been in existence for long and has been put into practice in different forms. In our world and specially in the African society, there are many ways of practicing the applicability of insurance policies. For example, small meeting 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 risk, especially one that is fatal or life threatening. For example in a meeting group where people are gathered to discuss issues of life and also to solve small and immediate financial issues, there is always a little contribution which is kept to help when a member is in urgent need or when for example one of the members falls sick or dies. The other members will always contribute to support the victim. This is mostly seen in the African setting. It can be seen and evident in the rising need for help patterning to the refugee crisis in most parts of the world like in South Sudan, North Nigeria and in the Middle East just to name a few.

With the above cited examples, many people have contributed money from all corners of the globe to help the alarming situation in these places for the good and wellbeing of people though with a little difference that the victims are not paying the premium like in the legal insurance company. Thus, though they are not referred to as insurance companies these organizations are out to serve the same purpose as the social insurance companies.

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