Insurance Is An Aleatory Contract: Explain

Definition of "Aleatory" (by Merriam-Webster Dictionary) —
'depending on an uncertain event or contingency as to both profit and loss'

Definition of "Aleatory contract" (by Cambridge Business English Dictionary) —
'an agreement that is connected with an event that is not under someone's control, that may or may not happen, and of which the result is uncertain. Most insurance agreements and derivatives (= financial products based on the value of another asset) are aleatory contracts:

The most common type of aleatory contract is an insurance policy, in which an insurance company must make payment only after a fortuitous event, such as a fire, occurs.'

Why is insurance an aleatory contract?

Insurance, as we know, is based or dependant upon an event in future which is not certain.

For example: in Life insurance - the time of death of the person assured is not certain; in Health insurance - the health problems of the person assured may arise anytime in future, which is an uncertain thing; in Home insurance - the fire to cause destruction to the house is almost a rare case.

An insurance contract entails a level of speculation on the risk involved and the monetary loss thereto. The insurance contract covers such burden of risk for the person who has taken the insurance policy. Hence, the insurance is known as an aleatory contract.

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