Understanding Insurance Contracts: Key Concepts and Elements

Insurance Contract: Core Concepts

An insurance contract is one whereby the insurer undertakes, by charging a premium, and if the event occurs whose risk is hedged, to compensate within the agreed damage to the insured, or to satisfy a capital, income, or other benefits agreed.

Legal Concept of Insurance (Art. 512 CCo)

Insurance is a bilateral, conditional, random contract by which a natural or legal person takes upon himself for a certain time all or any of the risks of loss or damage that certain objects belonging to another person may face. This is done by forcing through a contract fee to compensate the loss or any other estimable damage suffered by the insured objects.

Parties Involved in an Insurance Contract

1. Insurer: The entity assuming the risk. Under current legislation, insurers can only be corporations whose sole purpose is insurance, designated as insurance companies. This is the company that issued the policy, i.e., the document reflecting the insurance contract, the rules, and contractual relations between the company and the insured. The company also commits to providing the services specified in that document.
2. Insured: The party relieved from the risk assumed by the insurer. They bear the obligations of the contract under consideration.
3. Beneficiary: A third party for whose benefit the insurance is agreed upon, and who receives compensation that the insured is to pay in case of a disaster. The beneficiary is not directly part of this contract and, therefore, is not subject to any obligation. Their expectation is maintained while the policyholder does not withdraw their designation as a beneficiary.

Essential Elements of an Insurance Contract

1. Insurable Interest/Insured Object: Generally, all tangible property (houses, vehicles, businesses, jewelry, etc.) and intangible property (financial damage, work stoppage, etc.) can be insured. Additionally, life and heritage can be insured.

Article 522 CCo states that all tangible or intangible things can be insured, provided that at the time of the contract or when the risks begin on behalf of the insurer, they have an estimated value in money, may be subject to legitimate speculation, and are exposed to the risk taken upon by the insurer.

Therefore, the following cannot be the subject of insurance:

1. Expected gains or benefits
2. Objects of illicit commerce
3. Fully insured things, unless the last insurance relates to a different time or risks of different types comprising the previous
4. Things that have already run the risk, whether they have been saved or lost in it

Insurance on things that do not fulfill all the conditions stated in the first paragraph of this article is null and void.

2. Risk: A threat of loss or damage involving specific assets, specific rights, or the property of an entire person.

513 subsection 2 CCo: Risk means the event of any unforeseeable circumstances that may cause loss or damage to the insured property.

3. Premium: The amount that determines the insurer as remuneration/payment for the protection afforded under the terms of the insurance contract or policy. In other words, it is the price of insurance and is an essential requirement as per Art. 541 CCo: The insurance contracted without premium stipulation is void and of no value.