Legal Evaluation of Premium Payment as a Condition Precedent for a Valid Insurance Contract

Journal: Legal Research & Analysis

Publication: 2024-09-20 · Vol. 1 No. 2

DOI: 10.69971/jfh2c736

Abstract

The idea of insurance is widely recognized in commercial law and has evolved into a fundamental tenet of contemporary business dealings and contracts. It was designed to satisfy the requirements of contracting parties and has been supported as a workable and commercial tool that an insured can use to reasonably mitigate the effects of a disaster or other occurrence by purchasing an insurance policy. A service known as insurance exchanges risk for monetary responsibilities known as premiums. It is not uncommon for an insured party, before the advent of Insurance Decree 1997 after negotiating and executing an insurance policy, to defer payment of premium until a later date; or for insurance companies to accept part payment of premium, on the condition that payment would be made in full before the end of the insurance policy period. This position changed with the provision of ‘no premium no cover’ under Section 37 of the Insurance Decree, 1997. In an action for enforcement of a contract, the party who alleges breach must prove the existence and validity of a contract between him and the other party. A very important ingredient of the insurance contract is consideration; that is, for a contract to be valid, something of some value, e.g. money or services, must be exchanged for the promise under the contract. Offer and acceptance refers to an offer being made and then being accepted by the other party. Fulfilment of this legal requirement implies that negotiations have been settled and parties have come to an agreement.  Current study examined and evaluated premium payment of premiums as a prerequisite to enforceable insurance agreements and claims. It revealed that payment of full insurance premiums is imperative if a contract of insurance is legal and enforceable under section 50(1) of the 2003 Insurance Act. Also, it will be unreasonable and unjustifiable for an insured to be expecting indemnity when a full premium has not been paid to the insurer for proper coverage.