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Insurance Contracts and Its Examples

PFRS 17 defines an insurance contract as an agreement where one party accepts significant insurance risk from another, compensating them for uncertain future events. Key elements include the transfer of risk, payment of premiums, and indemnification against losses. Various examples of insurance contracts include life insurance, medical cover, and product warranties, while contracts exposing issuers only to financial risk do not qualify as insurance contracts.

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48 views2 pages

Insurance Contracts and Its Examples

PFRS 17 defines an insurance contract as an agreement where one party accepts significant insurance risk from another, compensating them for uncertain future events. Key elements include the transfer of risk, payment of premiums, and indemnification against losses. Various examples of insurance contracts include life insurance, medical cover, and product warranties, while contracts exposing issuers only to financial risk do not qualify as insurance contracts.

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novi bag-ay
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We take content rights seriously. If you suspect this is your content, claim it here.
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PFRS 17 Insurance Contracts

An insurance contract is “a contract under which one party (the issuer) accepts significant
insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event (the insured event) adversely affects the policyholder.”

(PFRS 17. Appendix A)

• Policyholder – “a party that has a right to compensation under an insurance contract if an


insured event occurs.”

• Insured event – “an uncertain future event that is covered by an insurance contract and creates
insurance risk.”

Essential elements in the definition of an insurance contract

• Transfer of significant insurance risk – there is a transfer of significant insurance risk from the
insured (policyholder) to the insurer (insurance provider).

• Payment from the insured (premium) – generally, the insured pays to a common fund from
which losses are paid. However, not all insurance contracts have explicit premiums (e.g.,
insurance cover bundled with some credit card contracts).

• Indemnification against loss – the insurer agrees to indemnify the insured or other beneficiaries
against loss or liability from specified events and circumstances (i.e., insured event) that may
occur or be discovered during a specified period.

Significant insurance risk (Uncertain future event)

• Risk (uncertainty) is an essential element of an insurance contract. Risk is the possibility of loss
or injury when an uncertain future event occurs.

• Insurance risk – is “risk, other than financial risk, transferred from the holder of a contract to the
issuer.”

PURE RISK

• A contract that transfers only an insignificant insurance risk is not an insurance contract.

• A contract that exposes the issuer to financial risk is not an insurance contract, unless it also
exposes the issuer to significant insurance risk.

Examples of insurance contracts

• Insurance against theft or damage.

• Insurance against product liability, professional liability, civil liability or legal expenses.

• Life insurance and prepaid funeral plans.

• Life-contingent annuities and pensions.


• Disability and medical cover.

• Surety bonds, fidelity bonds, performance bonds and bid bonds.

• Product warranties issued by another party for goods sold by a manufacturer, dealer or retailer.
Product warranties issued directly by a manufacturer, dealer or retailer are outside the scope of
PFRS 17.

• Title insurance.

• Travel insurance.

• Insurance swaps and other contracts that require a payment depending on changes in physical
variables that are specific to a party to the contract. (PFRS 17.B26)

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