Everyone concludes at least one insurance contract in their lifetime – to protect their home, car, or life, or to ensure coverage of health expenses when traveling abroad.

Most people are familiar with the main characteristics of the insurance contract – it is concluded in writing, most often in the form of an insurance policy, the general terms and conditions of the insurer apply to it, the policyholder has obligations to declare certain circumstances (the so called circumstances affecting the risk) and to pay a premium. In their turn, the insurer has one main obligation – to pay indemnity upon occurrence.

The specifics of the insurance contract, however, show when we ask the question "why" do the parties to the contract have precisely these obligations.

1. The first answer lies in the essence of the insurance contract, which is aleatory in nature. This is a contract in which one of the parties, at the time of conclusion, is not certain of its future obligations. In the case of the insurance contract, this is the insurer. Although its liability for payment of compensation is limited to the sum insured, its obligation to pay compensation may arise in the entire range from 0 to the policy limit. At the same time, when concluding the insurance, the obligations of the policyholder are precisely defined – to declare the circumstances affecting the risk and to pay the premium. The two main obligations of the policyholder are interrelated and correlate directly with the uncertain amount of the payment obligation that may arise for the insurer.
2. Insurance is a complex financial contract. Its price (the premium) is determined based on the declaration of the circumstances affecting the risk. They are defined by the insurer and are incorporated into the insurance questionnaire. These circumstances are analyzed based on statistical and historical data and formulas, and the result determines the amount of the premium. It is for this reason that the Bulgarian Insurance Code (BIC) attaches such importance to the circumstances affecting the risk. It allows the insurer to increase the premium due or to reduce the indemnity in case of inaccurate declaration of these circumstances. Inaccurate declaration of the circumstances may also lead to termination of the insurance contract.
3. The other essential feature of the insurance contract is the existence of insurable interest. It is defined in the BIC as the legally recognized need for protection against the consequences of a possible insured event. Although it may sound abstract, this requirement can be summarized quite simply - a person must have an actual necessity for protection under the contract because, for example, he/she is the owner of or is responsible for the insured property. It should be noted that what is important is not the interest of the policyholder – the party to the contract, but that of the insured person, since it is he/she who would bear the consequences of the damage at his/her own expense if the contract had not been concluded. For this reason, the BIC expressly recognizes as valid the contract concluded by a policyholder for another person's property. This is often the case when certain property is insured by its tenant. The insurable interest is of such essential importance that the BIC declares a contract concluded in the absence of an insurable interest to be void – if there was no interest, it is assumed that the contract was not concluded at all. If the interest drops out during the term of the insurance, the contract is terminated.

Finally, it should be emphasized that most of the features of the insurance result from its nature of a financial contract. Its essence is hidden in its name – in(sure)ance. Its function is precisely to “make sure” that we are protected from the occurrence of unforeseen circumstances in which we would be obliged to pay a significant amount to repair the damage. Therefore, we secure our financial uncertainty by paying a precisely defined amount – the premium, which protects us from unforeseen payments.

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