Differentiate between Insurance contract and Wagering contract –
Insurance and wagering contracts are not one and the same. They both are different. Insurance contracts should be distinguished from wagering or gambling contracts such as betting on the turn of a card or on horse racing etc. In a wagering contract, the parties create the risk and want to make money on the happening or otherwise of an event, while in insurance, the risk already exists and the purpose of the contract is simply to transfer the risk.
- A contract of insurance is a contract to make good the loss of property (or life) of another person against some consideration called premium.
- In a contract of insurance, the insured must have an insurable interest. Without an insurable interest, it will be a wagering agreement.
- In a contract of insurance both the parties are interested in the protection of the subject matter, i.e., there is mutuality of interest.
- Except for life insurance, a contract of insurance is a contract of indemnity, i.e. a contract to make good the loss.
- Contracts of insurance are based on a scientific and actuarial calculation of risks.
- A wagering agreement is an agreement to pay money or money’s worth on the happening of an uncertain event.
- No insurable interest is necessary in case of a Wagering agreement.
- In a wagering agreement there is a conflict of interest and in reality, there is no interest at all to protect.
- In case of a wagering agreement, there is no question of indemnity. On the happening of the event fixed amount becomes payable.
- Wagering agreements are not based on such calculations and are in the nature of gambling.