Insurance is an important part of modern life. Individuals and businesses take out insurance to protect themselves from loss that may occur due to damage to property or loss of life.

What is insurance?

This is a contract whereby a party known as the insurer undertakes, in consideration for a sum of money known as premium paid by the insured, to pay a sum of money or its equivalent on the happening of a specified future event.

The insurance contract is a contract like any other, but with particular peculiar principles. The insurable interest should be beyond the control of either party and there must be an element of negligence or that there is uncertainty. Contracts dealing with uncertain future events are either alieatory, contingent or speculative. In insurance risk exists in priori, whether or not we insure.

However in a wager/stake/ gamble there is no insurable interest.

Parties to the contract

Insurer: This is the person who undertakes to pay the sum assured or indemnity when the insured event occurs. To carry on insurance business in Kenya, a person must be a body corporate (company) licensed by the Commissioner of insurance to do business.

Insured: This is the person who takes out insurance cover, he is the person who pays the premium and may be a natural or artificial person. The insured must have an insurable interest in the subject matter of insurance.



For a contract of insurance to exist, there must be an agreement under which the insurer is legally bound to compensate the other party or pay the sum assured [premium]. This is the consideration that passes between the parties to support the transaction. It is asserted that

premium is the considerations which the insurers receive from the insured in exchange for their undertaking to pay the sum assured in the occurrence of the event insured against. Any consideration sufficient to support a simple contract may constitute a premium in a contract of insurance.


The insurance contract is aleatory, contingent or speculative as it deals with uncertain future events. For an event to be Insurable it must be characterized by some uncertainty.

Insurable Interest

The insurable event must be of an adverse nature .i.e. the insured must have an Insurable interest in the property, life or liability which is the subject of the insurance. Insurable interest is said to be the pecuniary or financial interest which is at stake or in danger if the subject matter is not insured. It is a basic requirement for the contract of insurance.


The insurable event must be beyond the control of the party assuring the risk as it was held in

Re Sentinel Securities P.L.L

Accidental or Negligent Loss

Insurance can only be effected where loss is accidental in nature or is a consequence of a negligent act or omission. Loss occasioned by intentional acts does not qualify for indemnity or for payment of the sum assured. It was so held in Toxleth v Hampton.


Risk has been defined as the chance of loss, the probability of loss or the probability of any outcome different from the one expected. It is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for. For individual proposes, risk is measured by the probability of loss as the individual hopes that it would  not occur.

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