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Insurance is a special form of contract called a "policy" where one party (the "insurer") receives consideration in the form of a "premium" from the other party (the "insured"), but is not expected to perform any reciprocating consideration unless a prescribed event that is essentially outside the control of both parties takes place at some time in the future, in which case a benefit is paid out to a beneficiary who can either be the person who originally paid the consideration or a third party that they nominated. Common forms of insurance are:

  • Payment on the death of the policy holder during the policy period (life insurance)
  • Damage to real or personal property caused by specified risks during the policy period (property insurance)
  • Compensation to third parties for the negligence of the policy holder (professional liability insurance)
  • Compensation for necessary medical treatment (health insurance)

Because of the importance of trust in this relationship, both parties to the contract are held to the standard of uberima fides - utmost good faith. The insured is required to reveal all facts relevant to the risk being undertaken by the insurer, and failure to disclose a material risk is grounds for non-performance. Conversely, the insurer is required to pay out the benefits of the policy immediately once the loss is proven and failure to do so may result in punitive damages.

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