A contract of insurance is a contract of indemnity and indemnity only. comment. and Insurance is sometimes spoken of as pooling of risks. comment.
A contract of insurance is a contract of indemnity and indemnity only:
Indemnity is somewhat similar to compensation. Its main purpose is to compensate the loss incurred and not make profits out of mishaps. If same property is insured with various insurers total amount recovered from all the different insurers should be less than the actual loss.
This principle cannot be applied in life, personal accident and sickness insurances but can be applied in case of fire and marine insurances only. Under this contract, the policy holder gets the compensation from the insurer and he neither gains nor losses from the mishap. Doctrine of subrogation applies only to contracts of indemnity.
That is why insurance is nothing but a contract of indemnity. It is so because if the company doesn’t bear the burden of loss, it has to be borne by a single person.
Insurance is sometimes spoken of as pooling of risks:
Insurance is spoken of as pooling of risks because if the interest is insured, the risk can be transferred easily on the insurer. Insured doesn’t have to worry about the loss as insurer takes care of it. Getting something insured, invites risks for the insurer and nothing else. As per the insurance, a compensated amount has to be given to the insured on the happening, of certain events which may happen but are not expected. Risks related to fire, theft, accident etc are insured and these risks are contingent in nature.