Ch 7 Life Insurance

Life Insurance

PUTTU GURU PRASAD INC GUNTUR

Definition and meaning •

It is a contract by which the insurer undertakes to pay to the person for whose benefit the insurance is made, a certain sum of money on the death of a person whose life is insured, or on expiry of a certain period.

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This promise is made for a consideration of a certain premium either in a gross sum or by periodical payments, whichever is earlier.

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In case of death, the payment will be made to the legal representatives and in case payment is made after the expiry of a certain period, then it will be to the person who has insured. ( Maturity of the policy).

Life Insurance contract not a contract of indemnity •

It is not considered to be a contract of indemnity, because human life is incapable of being measured in terms of money.

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In case of life insurance, the happening of the event is certain, but the time is uncertain, whereas in other insurances, the event by itself is uncertain like the contingency of perils of marine and fire may or may not happen.

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Because of the above reason, the amount paid as a premium is paid back either after death or on maturity, whereas in other insurances nothing is paid if the risk that is insured does not happen.

Insurable interest in life insurance •

Insurable interest is a prerequisite for the life insurance contracts while entering into contract. In the absence of insurable interest, the contract is void as a wager.

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Anyone who has a pecuniary claim against the other, or a legal right to support from him, has an insurable interest in the life of the other. This rule is applicable to life insurance only, as it is not a contract of indemnity.

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E.g.. A child who is dependent upon his father or mother has an insurable interest in the life of his father.

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In case of life insurance, the insurable interest has to exist at the time of entering into a contract, and it may not be important that the insured or assured had the insurable interest at the time when the policy falls due.

Insurable Interest Certain Examples •

One’s own life- To an unlimited extent one has an insurable interest in his or her own life.

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Husband and wife- It is approved by law that there is insurable interest in the life of one’s spouse. In this relationship, even in absence of pecuniary interest there can be an interest. But in other relationships such as , parents, brother, sister etc.. the law expects that the monetary dependency or support has to be proved.

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The other relationships accepted by law are creditor, debtors, partners, a trustee in the life of beneficiary, a servant in the life of the master and vice versa..

Life Insurance Policy (General Terms and Conditions) •

Name of the plan governing the policy.

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What kind of a policy is it, participating in profits, bonus etc?

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Contingencies for making the payments.

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The date of commencement and maturity.

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The provisions of nominations, assignment, loans as security etc…

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Any other special clauses like suicide, first pregnancy clause etc..

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Existence of insurance ombudsman, mechanism, review committees etc…

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The complete address of the insurer as well as the insured.

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