12 Differences between Insurance and Wagering Contract
Differences between Insurance & Wagering Contract
Insurance contracts should be distinguished from wagering or gambling contracts such as betting on the turn of a card or on horse racing etc. According to Sec.30 of the Indian Contract Act, all agreements by way of wager are void.
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 contract is simply to transfer the risk. Though there is uncertainty and payment is made on the happening of the event, in both the cases, really it is to so. The following are the differences between these two contracts.
A contract of insurance is legally enforceable, a wager is not.
2. Insurable Interest
There must be insurable interest in the subject matter under a contract of insurance. This is not necessary for a wager, where the interest is limited usually to the stake won or lost.
3. Utmost good faith
A contract of insurance requires the parties to observe utmost good faith but in case of a wagering contract, good faith need not be observed.
In case of a wagering contract, no consideration by way of premium is given by the insured to the insurer, whereas in the case of an insurance contract, there is consideration due to the presence of insurable interest.
5. Social Approval
Insurance contracts have the general approval of the society and are encouraged as they benefit the community as a whole, while wagering contracts are not approved by the society.
Indemnity and nothing more than indemnity is obtained under a policy of insurance other than life or persona accident; this does not enter into a wager. The sum paid under a contract of insurance represents the actual loss sustained; he who wins a bet has his stake returned, together with some addition.
7. Happening of Event
An insured event (except death) against the risk of which the insurance is taken may or may not take place at all. The wagering event is bound to happen.
Insurance is meant for protection, if the risk which is already there, materializes. But the risk is oriented in wagering contracts.
The wagering amount is paid immediately on the occurrence of the event. Only if there is a loss owing to the occurrence of the event, the money will be paid subject to a maximum limit specified in insurance contract.
A wagering contract is a blind contract and there is no yardstick to assess the risk accurately. As against this, all insurance contracts are based on scientific and actuarial calculation of risks and the premium is calculated by taking into account all the circumstances attending on the risk.
11. Risk in Claims
With nearly every type of insurance contract, claims involve risks of varying degrees. A fire insurance policy, for instance may involve crores of rupees or not even a single paisa. With wagers, the amount payable to the winner or payable by the loser is known in advance. Thus, a wager is either won or lost.
12. Return of premium paid
Under an insurance agreement, the insurer is liable to pay the money, if an insured event occurs, but is not required to return the premium. But in case of a wagering contract, the premium paid is also returned to the winner in addition to the prize money.