2 MEANING OF LIFE INSURANCE “ A contract of Life assurance is that I which one party agrees to pay given sum on the happening of a particular event contingent upon the duration of human life in consideration of the immediate payment of a smaller sum or certain equivalent periodical payments by another”.
3 FEATURES OF LIFE INSURANCE CONTRACT NATURE OF GENERAL CONTRACTINSURABLE INTERESTUTMOST GOOD FAITHWARRANTIESPROXIMATE CAUSEASSIGNMENT AND NOMINATIONRETURN OF PREMIUMOTHER FEATURES
4 1. NATURE OF GENERAL CONTRACT Insurance contracts are governed by Indian contract act 1872 which states that to be legally valid following elements should be in order.Agreement (Offer and acceptance)Legal ConsiderationFree consent of the partiesCompetency of the partiesLegality objective
5 2. INSURABLE INTERESTInsurable interest is an important element of insurance contractThe insured must have an insurable interest in the life to be insured for a valid contract.Insurable interest arises out of the pecuniary relationship that exists between the policy-holder and the life assured so that the former stands to lose by the death of the latter and continues to gain by his survival.
6 2. INSURABLE INTEREST INSURABLE INTEREST OWN LIFE OTHER’S LIVES PROOF REQUIREDPROOF NOT REQUIRED
7 PROOF NOT REQUIREDIN THE FOLLOWING CASES NO PROOF IS REQUIRED FOR PROVIDING INSURABLE INTEREST:Husband has insurable interest in the life of wifeWife has insurable interest in the life of husband
8 PROOF REQUIRED BUSINESS RELATIONSHIP Creditor in the life of debtor Partner has insurable interest in the life of each partnerEmployee has interest in the life of Key-manSurety has insurable interest in the life of principalFAMILY RELATIONSHIP
9 GENERAL RULES FOR INSURABLE INTEREST Time of insurable interestInsurable interest must be valuableServicesInsurable interest should be validLegal responsibility may form the basis of insurable interestInsurable interest must be definiteLegal consequence
10 UTMOST GOOD FAITH:The greatest degree of good faith by law, is expected from the proposer, that is the main reason why good faith in case of Insurance contracts becomes UTMOST good faith.It is the duty of the proposer to disclose all material facts not only already known but also extends to material facts which he ought to know.
11 FACTS NOT REQUIRED TO BE DISCLOSED The disclosure in regard to universal factsThe facts which are superfluous to disclose by reason of any conditionThe facts which reduce the risk of insurerThe facts which are marked by the insurerThe facts which are known to the insurer in the ordinary course of the business.
12 EXAMPLES OF MATERIAL FACTS: LIFE: Material facts are : name , address and occupation of insured person, date of birth facts about health and habits, family history and plan of insuranceFIRE: Construction of building, type of occupancy, nature of good stored etc.MARINE: method of packing, inherent vice etc.
13 4. WARRANTIESRepresentation: The representations which are contained by the policies and expressly or implicitly forming the part of the contract are known as warranties.The Representation means any information which a person gives to the insurer during stipulations which is collateral to the main purpose of the contract.
14 TYPES OF WARRANTIES WARRANTIES INFORMATIVE WARRANTIES PROMISSORY WARRANTIESBREACH OF WARRANTY
15 5. PROXIMATE CAUSEThe efficient or effective cause which causes the loss is called Proximate cause. It is the real and actual cause of loss. If the cause of loss is insured then insurer will pay the claim, otherwise the claim will not be met.This principle does not apply in case of life insurance contracts. In these cases the insurance Co. pays the claim irrespective of the cause of death. The cause may be natural or unnatural but the insurer is bound to pay the claim in case of death of the insured.
16 Exceptions of proximate cause EXCEPTIONS OF PROXIMATE CAUSE IN CASE OF LIFE INSURANCEI) WAR RISKII)SUICIDEIII)ACCIDENT BENEFIT
17 6. ASSIGNMENT & NOMINATION A Life Insurance Policy can be assigned freely for a legal consideration or love and affection.The assignment will be complete only on the execution of such endorsement either on the party itself of by a separate deed.Once the assignment is completed, it cannot be revoked by the assignor unless reassignment is made by the assignee in favour of the assignor.
18 Continued…The holder of a life insurance policy on his own life may either at the time of affecting policy or at any subsequent time before the policy matures, nominates the person or persons to whom the money of the policy will be paid in the event of his death.A nomination can be cancelled before maturity but a notice must be given to the insurer.
19 7. RETURN OF PREMIUMGenerally the premium paid is not required but in following cases premium paid is returnable:For reason of Equity.By agreement in the policy.
20 8. OTHER FEATURES Alcatory contract Unilateral contract Conditional contractContract of adhesionIndemnity contract is not applied