Insurance is defined as a contract made by a company or society or by the state, to provide a guarantee of compensation for loss, damages, sickness, death, liability, etc. (Sum Insured) in return for regular payment made by the insured party – Premium.

Though there are several players in the process of setting up an insurance contract, the principal parties are two. The Insurer, usually an insurance company; state; society; who provide the guarantee and the Insured usually an individual or an organization to who the guarantee is made.

The Insurer makes presentation to the insurance market through various marketing avenues including pamphlets, agents, brokers, etc. An individual or an organization responds to the presentation by making an application which is sent with the appropriate deposit also known as premium. When the Insurer goes through the application and accepts to provide the required guarantee a contract is concluded and contract agreement is issued. This agreement is also called Insurance Policy.

From the legal stand point the contract so concluded is competent in Law and can be accepted as evidence in Court of Law.

• The application and information provided by the applicant is the offer to purchase insurance;
• The review of the application also called underwriting and to provide the contract is the acceptance;
• The deposit money received with the application is the consideration.

Since in most cases the Insurer does not authenticate the information provided by the applicant, it is always assumed that the information is true to the best of the applicant’s knowledge and belief. The application is therefore part of the contract. That is partly why the insurance contract is referred to as contract of utmost good faith.