Good Morning!!!

Keshab Singh Air

Assistant Professor
Far-Western University(FWU)
Kailali Multiple Campus(KMC)
Faculty of Law
B.A.LL.B. 4th Semester
Subject : Law of Insurance(Course Code:260)

Topic: Nature and Elements of Insurance Contract

 Unit II: Insurance Contract

• Nature and Elements of Insurance Contract

• Classification of Insurance Contract
• Formation of the Insurance Contract/ Policy
• Unfair Terms in Consumer Insurance Policies and
liabilities
• Void, voidable or Discharged contracts
 Nature and Elements of Insurance Contract
• The Insurance is a contract. Thus all the essentials of contract must be
fulfilled.
• The Insurance contract should be based on the subject matter which has an
Insurable Interest in it. Like for vehicle owner his vehicle is an insurable
interest because in case of loss or damage to the said vehicle he/she can
suffer financial crises/loss. It can be compensated through the insurance if
he/she insured their vehicle.
• The Insurance is for pure risk. The person can't insure the subject matters in
which the probability of risk is not involved in it. So the contract of
Insurance compensates for loss or damages which an insurer will incur due
to such risk.
• The Insurance is based on certain principles. The parties to the Insurance
contract must act in accordance with such principles and in-case of non-
compliance the aggrieved party can proceed in accordance with the due
procedure of law or in accordance with term of insurance contract.
• The nature of Insurance is a medium of sharing risk by a massive number
of people amongst the few who are open to risk by some or other reason.
• If a huge number of insured people serve the purpose of compensation for a
few among them exposed to uncertain risk, this nature of insurance is
described as a co-operative device.
• The amount of compensation in an insurance is predefined according to the
terms and condition of the insurance contract.
• Insurance provides aspects of financial help in case of an uncertain event.
• The payment of compensation in an insurance contract primarily depends
on the value of the insurance policy/contract.
• As insurance is contractual in nature, it is regulated under due procedure of
law. Because of which the amount of insurance can either be paid as a
gambling or as charity, it has to be paid according to the terms and
condition of the insurance contract.
 An insurance contract is a legally binding agreement between an
insurance company(indemnifier) and the insured (indemnity
holder).
 The indemnifier promises to save the indemnity holder in case he
suffers loss resulting from the causes enclosed in the insurance
contract.
1. Lawful consideration
2. Payment on contingency
3. Risk evaluation
4. Large number of Insured Persons
5. Co-operative device
6. Not a Charity or gambling
 Elements of an Insurance Contract
• In order for an insurance contract to be legally binding, the document
must meet the essential elements required of all legally binding
contracts, plus a few special elements that are specific to and
required by insurance contracts.
• First let us talk about the elements required of legally binding
contracts in general:
• Offer and Acceptance - This refers to an offering being made and
then being accepted by the other party.
When you fulfill this legal requirement, you are saying that all of the
negotiations have been settled and you’ve come to an agreement.
This is also often called “agreement” or a “meeting of the minds”.
In the insurance context, that means you have made an application to
the insurance company, they have accepted it and you have accepted
the policy terms they offered.
Continued…
• Consideration - This refers to a fair exchange of value. A contract
where one party gets everything while another party contributes
nothing does not meet this requirement. In the example of an
insurance policy, you are paying them premiums while they are
providing you with a promise to pay claims in the future.
• Legal Capacity - To satisfy this requirement, everyone that is a party
to the contract must have the legal capacity or competence to enter
into a contract. This means you have to meet certain requirements
such as being above the age of majority in your jurisdiction and have
the mental capacity to understand what you are signing and agreeing
to.
• Legal Purpose - Obviously, the courts will not enforce a contract that
is not legal. For example, a contract for the provision of illegal
services would not be a legal and valid contract because the course
would not enforce it.
• Insurable Interest
• When the insured receives financial gain from the person or item
being insured, they have an insurable interest. Suppose the person or
thing being guaranteed passes away, suffers damage, disappears, or
is otherwise lost. In that case, the insured will suffer a financial loss.
The coverage of items in which prospective insureds have no
insurance interest is not permissible.
• Utmost Good Faith
• The term “utmost good faith” refers to both parties to an insurance
contract having acted wholly and honestly without making any false
statements or failing to disclose any material information.
• Competent Parties
Only “competent parties” of sound mind and body can enter into
insurance contracts. In addition, the insured must be of legal age to
purchase insurance, and the insurance provider must hold a valid
license from the state where the insured resides.
 The other elements required are specific to
insurance contracts:
• Indemnity.
• Insurable Interest.
• Utmost Good Faith.
• Subrogation.
• Assignment and nomination.
• Warranties.
• Proximate Cause.
• Return of Premium.
•
 Good Morning!!!

Keshab Singh Air

Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem
Law of Insurance

Topic: Classification of Insurance Contract

Unit II: Insurance Contract

Classification of Insurance Contract

Classification of Insurance Contract

As per Insurance Regulation, 2049 (1993) rule 3 Categorized/classified

the of Insurance Business into 3 parts:

(1) Subject to the provisions made in the Act and this Regulation, the
Insurance Business to be operated by an Insurer shall be divided into the
following categories :

(a) Life Insurance Business,

(b) Non-Life Insurance Business,

(c) Re-Insurance Business.

(3) Notwithstanding anything contained in sub-rule (1), Nepal Government

may prescribe other categories of Insurance Business as required on the
advise of the Board.
Rule 4. Life Insurance Business :

(1) The Insurer may operate the following Insurance Business under the Life
Insurance Business:-

(a) Whole Life Insurance,

(b) Endowment Life Insurance,

(c) Term Life Insurance.

(2) Notwithstanding anything contained in sub-rule (1), the Board may

prescribe other categories of the Life Insurance Business as required.

(3) The conditions and privileges of the Life Insurance Policy to be executed
pursuant to this Rule shall be as specified by the Board.
Continued
Rule 5. Non-Life Insurance :
(1) The Insurer may operate the following Insurance Business under the Non-
Life Insurance Business :
(a) Fire Insurance,
(b) Motor Insurance,
(c) Marine Insurance,
(d) Engineering and Contractor's Risk Insurance,
(e) Aviation Insurance,
(f) Miscellaneous Insurance.
(2) Notwithstanding anything contained in sub-rule (1), the Board may
prescribe other categories of Non-Life Insurance Business as required. (3)
The conditions and privileges of the Non-Life Insurance Policy to be
executed pursuant to this rule shall be as specified by the Board.
Rule 6. Re-insurance Business :
(1) The Insurer may re-insure the risks which are in excess from the risks assumed by it.
(2) The Categories of Re-insurance Business to be made pursuant to sub-rule (1) and
other arrangement shall be as specified by the Board.
 Good Morning Class!!!

Keshab Singh Air

Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem

Law of Insurance

Formation of the Insurance Contract/ Policy

Formation of the Insurance Contract/ Policy
• Insurance may be defined as a social device that reduces or eliminates the risk of life
and property by providing financial compensation for any uncertain misfortune.
• It is basically a contract between two parties, i.e the insurer and the insured, wherein
one party promises to save the other, for compensation called the premium, from the
loss caused to him due to some specified contingency.
• In legal aspects, it is a contract whereby one party agrees to indemnify the other
against the loss caused to him due to the occurring of one particular event.
• An insurer is a company selling the insurance, an insured or a policy holder is a
person buying the insurance, and the premium is the amount that is to be charged for
insurance coverage.
• In simple words, Insurance is a contract in which one party (the insurer), for a
consideration (the premium), assumes a particular risk of the other party (the
insured) and promises to pay to the other party or his beneficiary, a certain or
ascertainable sum of amount on the happening of specified contingency against
which the insurance is asked for.
• Every insurance contract satisfies all the essentials of a valid
contract as stated in the Chapter 2 of part 5 of National Civil Code
2074 BS. In Addition, section 62 of Insurance Act 2079 BS has also
emphasized on the following elements as the essential elements
for the Formation of Insurance Contract.
• An Agreement
• Competency of the Parties
• Free Consent
• Consideration
• Lawful Object
 As per the Insurance Act,2079 Section 62(1) states the insurance contract must be
in writing.
(2) The proposal made by the insured for insurance, the policy, the schedule thereof
and the documents issued in connection with the same shall be considered an
integral part of the insurance contract.
(3) At the time of entering into an insurance contract, the insurer and the insured
shall clearly inform an auditor of the factual information regarding the proposed
liability.
(4) The insurable interest of the insurance proposal must be established in the
subject to be insured.
(5) Other provisions related to the insurance contract shall be in accordance.
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Formation of the Insurance Contract/ Policy
There are many components of a contract, and they will have
different titles and names depending on the insurance and the
service being provided; however, let's take a closer look at this
list that covers what each section should contain and could be
called:
• Offer - This is where the insurer will offer a specific service,
such as paying for your home and belongings in case of a flood.
• Acceptance or agreement - The agreement is the section where
the insured agrees to the offer by paying a certain amount to
secure the service
• Competent parties and components - This is the list of what is
being insured and caveats on what will not be insured, much like
a list of cars that are being insured and have been notated and
paid for, while other non-listed vehicles will explicitly be
uncovered.
•
Continued
• Consideration - Consideration is necessary for the formation of a
contract. It means "something return". A contract without
consideration is void.
It is the price paid for the contract. It must be Lawful. This is where
the legal wording will come into play; all the lawful requirements
needed to be met by both parties will be here, making them
responsible for what they promise.
• Legal relationship - This follows the consideration section because it
is a section mostly used for signatures and guidelines for the
requirements by every party agreeing to the contract, and then the
consequences if a party does not hold up their end of the bargain.
Additionally, this is the section where you have to agree that you are a
responsible party that can enter into a legally binding contract, which
usually focuses on age and sometimes credit concerns.
 Good Morning Class!!!

Keshab Singh Air

Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem

Law of Insurance

Unit II: Insurance Contract

Unfair Terms in Consumer Insurance Policies and liabilities
Unfair Terms in Consumer Insurance Policies and Liabilities
Unfair terms in consumer insurance policies refer to clauses or conditions that create
an unjust or unbalanced relationship between the insurer and the policyholder.
These terms may be hidden, unclear, or not adequately explained to the consumer.
These terms can be found in various types of insurance policies, such as car
insurance, home insurance, and health insurance.
Unfair terms in insurance policies are generally prohibited by consumer protection
laws in many countries. (Consumer Protection Act 2075 BS section 16)
These laws require that insurance contracts be drafted in clear and understandable
language, and that any terms which are deemed unfair or misleading be struck down.
Sub-section (d, e and f) of section 69 of Insurance Act 2079 BS have strictly
prohibited unfair terms or unfair insurance policies.
Consumers who believe they have been subject to unfair terms in an insurance
policy may have legal recourse to challenge these provisions or seek compensation
for any damages they may have suffered. (Insurance Board settles disputes in Nepal)
An unfair contract term is one that:
• Causes a significant imbalance in the parties’ rights and obligations
• Is not reasonably necessary to protect the legitimate interests of the party seeking
to rely on the term
• Would cause detriment (harm, damage) to a party if it relied on.
A court may declare a contract term void, and the contract will continue to bind the
parties as long is it capable of operating without the term.
The provisions apply to standard form contracts where the consumer does not have
the ability to negotiate the terms.

An insurance policy is a typical example of a standard form contract.

The provisions do not cover all types of insurance contracts.

For example, the provisions do not cover private health insurance, compulsory third
party schemes and workers compensation.
Why fair Terms?
I. First and foremost, they ensure that consumers understand what they are paying for and what
they are covered for. Insurance policies can be complex and full of technical jargon, which can be
difficult for the average consumer to understand. Fair terms ensure that the language used in the
policy is clear and simple, making it easier for consumers to understand the coverage they are
purchasing.
II. fair terms in consumer insurance policies help prevent insurance companies from engaging in
unfair or deceptive practices. For example, if an insurance company includes a clause in its policy
that allows it to deny coverage for a certain type of claim without a valid reason, this could be
considered an unfair term. Fair terms ensure that insurance companies cannot include such
clauses in their policies.
III. Fair terms also help ensure that consumers are not taken advantage of by insurance companies.
For example, if an insurance company includes a clause in its policy that allows it to cancel
coverage without notice or reason, this could leave the consumer vulnerable and without
protection when they need it most. Fair terms ensure that insurance companies cannot engage in
such practices.
Continued
When can a term be declared unfair?
A term will be declared unfair by a court if it can be established that a term in such a
contract:
• will result in a significant imbalance in the parties’ rights and obligations;
• is not reasonably necessary to protect the legitimate interests of the party who
would be advantaged by the term; and
• would cause detriment (either financial or otherwise) to a party if it were to be
relied on.
• All three conditions (i.e. ‘significant imbalance’, ‘not reasonably necessary’ and
‘cause detriment’) must be met before a court will decide a term is unfair.

• Examples of an unfair term include:

• a term that permits one party (but not the other) to avoid or limit performance of the
contract;

• a term that permits one party (but not the other) to terminate the contract;

• a term that penalises one party (but not the other) for a breach or termination of the
contract.
Larger side effects/Consequences of Unfair Terms
I. Denial of coverage: If an insurance policy contains unfair
exclusions or limitations, the insurer may deny coverage for a
claim, leaving the policyholder responsible for the cost of any
damages or losses.
II. Financial hardship: Excessive excess requirements or unfair
pricing can make insurance unaffordable for some consumers,
leaving them without protection against potential risks.
III.Legal disputes: Unfair terms in insurance policies can lead to
legal disputes between policyholders and insurers. This can be
time-consuming and expensive, and may result in the policyholder
receiving less.
IV.Loss of trust: If consumers perceive an insurance company as
being unfair or deceptive, it can damage their trust in the company
and discourage them from purchasing insurance in the future.
V. Negative impact on the market: Unfair terms in insurance
policies can harm the overall market by discouraging competition
and innovation, which can result in higher prices and less choice
for
 Good Morning Class!!!
Keshab Singh Air
Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus

Faculty of Law
B.A.LL.B. 4th Semester

Subject: Law of Insurance

Unit-2 Insurance Contract

Topic: Void, Voidable or Discharge Contracts
Contract:
• A contract is a legally binding promise (written or oral) by one party
to fulfill an obligation to another party in return for consideration.

• A basic binding contract must comprise four key elements: offer,

acceptance, consideration and intent to create legal relations.
• A contract is a legally binding agreement between two parties.
• A contract is valid and enforceable if the agreement contains
sufficient evidence of the following elements:
• an offer and an acceptance;
• a common intention between the parties to create binding relations;
• the giving of ‘consideration’ for the promise;
• legal capacity of the parties to act;
• genuine consent of the parties; and
• legality of the agreement.
 Void, Voidable or Discharge Contracts
• A void contract is one that breaks the law and was never intended to
be enforced in the first place.
• A void contract is a formal agreement that is effectively illegitimate
(not authorized by the law) and unenforceable from the moment it is
created.
• A voidable contract is one that was initially deemed lawful by the
parties but is later deemed unenforceable against one of the parties
due to valid legal grounds.
• A void contract differs from a voidable contract because, while a void
contract is one that was never legally valid to begin with (and will
never be enforceable at any future point in time),
• voidable contracts may be legally enforceable once underlying
contractual defects are corrected.
• At the same time, void contracts and voidable contracts can be
nullified for similar reasons.
• A contract may be deemed void if the agreement is not enforceable as
it was originally written.

• In such instances, void contracts (also referred to as "void

agreements"), involve agreements that are either illegal in nature or in
violation of fairness or public policy.

• A void contract is a formal agreement that is effectively illegitimate

and unenforceable from the moment it is created.

• Examples of void contracts could include prostitution or gambling.

• If someone enters into a contract and is suffering from a serious

illness or was mentally incompetent, it would be void because the
party lacked legal capacity to enter into a contract.
Void contract
• A void contract differs from a voidable contract, although both may
indeed be nullified for similar reasons.
• A contract may be deemed void if it is not enforceable as it was
originally written.
• Void contracts can occur when one of the involved parties is
incapable of fully comprehending the implications of the agreement,
like when a mentally impaired individual or an inebriated person may
not be coherent enough to adequately grasp the parameters of the
agreement, rendering it void.
• Agreements entered into by minors or for illegal activities may also
be rendered void.
• Void contracts can occur when one of the involved parties is incapable of fully
comprehending the implications of the agreement.

• For example, a mentally impaired(having a disability of a specified kind)

individual or an inebriated(intoxicated) person may not be coherent enough to
adequately grasp the parameters of the agreement, rendering it void.

• Furthermore, agreements entered into by minors may be considered void; however,

some contracts involving minors that have acquired the consent of a parent or
guardian may be enforceable.

• Any contract agreement created between two parties for illegal actions is also
considered a void contract.

• For example, a contract between an illegal drug supplier and a drug dealer is
unenforceable from the onset due to the illegal nature of the agreed-upon activity.
Voidable or Discharge Contracts
• A void contract is no longer considered a contract at all. Since it has lost its status
as a contract, it is unenforceable and has no binding legal effect.
• A voidable contract is a formal agreement between two parties that may be
rendered(provide, give, distribute) unenforceable for any number of legal reasons,
which may include:
 Failure by one or both parties to disclose a material fact
 A mistake, misrepresentation, or fraud
 Undue influence or duress
 One party's legal incapacity to enter a contract (e.g., a minor)
 One or more terms that are unconscionable(not right or reasonable)
 A breach of contract
A contract that is deemed voidable can be corrected through the process of ratification.
Contract ratification requires all involved parties to agree to new terms that effectively
remove the initial point of contention that was present in the original contract.
If it was later discovered that one of the parties was not capable of entering into a legally
enforceable contract when the original was approved, for example, that party can
choose to ratify the contract when they are deemed legally capable.
The discharge of a contract means that the obligations of the contract come to an end.
When discharge occurs, all duties which arose under the contract are terminated.

The discharge of a contract is characterised as the end of an agreement or an

arrangement made by a couple of parties, which results in the failure in performing or
playing out the obligations referenced at the hour of making a contract with the
acknowledgment of all the parties with free consent. Subsequently, the commitments
might be legal or contractual or performance, or even operational.

The different methods by which a contract can be discharged are as follows:

Discharge of contract by breach of contract:
Breach of contract is concerned with the termination of the original contract due to the
failure of performing obligations by either or all of the parties, which discourages each of
the other parties. It relates to void or terminating the original contract completely. These
breaches of contracts may be either anticipatory or actual.
Discharge of contract by accord and satisfaction:
Accord is an executor contract that helps to perform the existing duties at present to avoid the
contractual discharge. On the other hand, based on the performance of the accord, the satisfaction
of a contract will be considered, and one doesn’t want to void the entire contract.
Discharge of contract by the impossibility of performance:
In this case, the discharge of the contract happens without any interference from both of the
parties. Despite the fact that everything is acceptable at the place of pain, certain unexpected and
undetermined issues might occur, which decreases the chance of playing out or performing a
contract. This includes a downturn for the market, catastrophic events, absence of legitimate
reason, unfortunate episodes, and so on. In the Indian Contract Act, segment 59 plainly clarifies
that assuming any of the reasons might prompt the difficulty of execution, and it is prudent to
break the agreement.
Discharge of contract by lapse of time:
It is indicated that in case if the agreement can’t be performed within the predetermined period, it
might influence the other party and lead to the abrogation of the whole agreement. Then, at that
point, it is treated as a contractual discharge of the agreement by a time-lapse.
Discharge of contract by agreement:
If both of the individuals or parties in the agreement aren’t willing to proceed with the
agreement till the due date, then it is changed over to the next party, whether or not they
might acknowledge the discharge of the agreement or contract by the understanding
will occur. However, it happens in different circumstances.
They are as follows:
A: Waiver: Waiver refers to the abandonment of right. In case any of the parties
surrender their rights from the contract, which affects the other party, then it leads to the
discharge of the contract by substitute agreement.
B: Alteration: It is another situation where the particulars of the agreement or contract
will be changed either partially or totally with the assent of the two parties.
Be that as it may, the parties will not change, and they can appreciate new advantages,
possibly they may less or more than the old agreement or contract.
C: Rescission: Here, both the parties agreed to modify certain rules and regulations in
the contract with mutual understanding. It may lead to the cancellation of all the rules
or may cancel partially.
D: Novation: Specifying the substitution of either a new contract in the place of the
original contract or new members in the place of the old one, whether it may be a single
person or both the parties, is known as novation, which is a part of the contractual
discharge by substitution of agreement.
The major differences between void contract and voidable contract are as
under:
A contract which lacks enforceability is Void Contract.
A contract which lacks the free will of one of the parties to the contract is known
as Voidable Contract.
A void contract was valid at the time when it is created, but later on, it becomes
invalid.
Conversely, the voidable contract is valid until the aggrieved party does not
revoke it within stipulated time.
When it is impossible, for an act to be performed by the parties, it becomes
void, as it ceases its enforceability.
When the consent of the parties to the contract is not free, the contract
becomes voidable at the option of the party whose consent is not free.
In void contract, no party can claim any damages for the non-performance of
the contract.
 Good Morning Class!!!
Keshab Singh Air
Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem
Law of Insurance

Unit II: Insurance Contract

Temporary Cover and Cover Note
Temporary Cover and Cover Note

• A cover note is a temporary document issued by an insurance company that provides

proof of insurance coverage until a final insurance policy can be issued.

• A cover note is different from a certificate of insurance or an insurance policy

document. A cover note features the name of the insured, the insurer, the
coverage, and what is being covered by the insurance.

• During this time, the insurer may continue to evaluate the risks associated with
insuring the holder of the cover note.

• The cover note will continue to serve as the insured’s proof that coverage exists until
the insurer issues the policy documents and certificate of insurance or else denies
issuing the policy
Insurance companies issue a cover note to provide an individual with proof of
insurance before all the insurance paperwork has been processed.

During this time, the insurer may continue to evaluate the risks associated with
insuring the holder of the cover note, and the cover note will continue to serve as
the insured’s proof that coverage has been purchased until the insurer issues the
policy documents and certificate of insurance.

In general, the cover note provides the same level of coverage as the full insurance
policy, though insurers may place some restrictions while they make any final
determinations on the risks associated with the insurance policy
• Hence,
• A cover note is a temporary document/ cover issued by an insurance
company that provides proof of insurance coverage until a final insurance
policy can be issued.
• During this time, the insurer may continue to evaluate the risks associated
with insuring the holder of the cover note.
• The cover note will continue to serve as the insured’s proof that coverage
exists until the insurer issues the policy documents and certificate of
insurance or else denies issuing the policy
• Cover note carries the name of the insured, the insurer, the coverage, and
what is being covered by the insurance, Cancellation provision which
provides that either of the parties may cancel the cover by giving a written
notice, a statement at the bottom of the cover note indicating that the insured
is held covered as per usual terms and conditions of the company, signature
and date of the insurer
Temporary Cover and Cover Note
The information that would usually appear on a cover note is;
• Name, address, and occupation of the insured.
• Sum-insured and provisional premium.
• Date and time of the commencement of cover.
• Duration of cover,
• The scope of cover, i.e., perils covered,
• Description of the property or subject-matter covered.
• Cancellation provision which provides that either of the parties may cancel the cover by
giving a written notice within a prescribed time.
• A statement usually appears at the bottom of the cover note indicating that the insured is
held covered as per usual terms and conditions of the company’s standard policy form
used for this class of business,
• Signature and date of the insurer.
• Example of a Cover Note
• In the case of purchasing a vehicle with a loan, cover notes can play
an important role in binding the transaction.
• That's because the lending institution typically won't allow the
individual purchasing a vehicle to drive it off the lot without
insurance.
• Then, a buyer will call their insurance company and buy the policy
over the phone, and the insurance company will immediately email
or fax a cover note to the buyer, which will allow them to drive the
car off the lot.
• However, this will only be necessary if the insurance company can't
immediately deliver a certificate of insurance.
• Some insurance companies do not issue cover notes and instead
issue a certificate of insurance immediately when the policy is
purchased and accepted.
 Good Morning Class!!!

Keshab Singh Air

Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem
Law of Insurance

Topic: Duration and Renewal of Insurance Policies

 Policy Term or Policy Duration.
• The policy tenure is the time period in which the insurance company
provides coverage to the assured.

• The policy tenure can be ranged from 1 year to 100 years or whole life
depending upon the type of plan, its terms and conditions and according to
the need of the policy holder.

• It can also be referred as policy term or policy duration.

• The policy tenure decides for how long the company is providing the risk
coverage.

• However, in the case of whole life insurance plans, the life coverage is till
the time life assured is alive.
• The duration of insurance policy is the time frame during which an
insurance policy is effective.
• The start date and end date are the cutoff dates on your documentation,
payments, and coverage unless you renew the policy.
• The duration of the insurance varies depending on the type of insurance
policies.
• Most car insurance policies last for six months or one year, while health
insurance policies may last for several months or several years.
• Whole life insurance remains in effect for the remainder of one's life.
Homeowners insurance policies typically last for one year from the
effective date, while life insurance policy terms are typically longer.
• The policy term refers to the amount of time for which the policy
remains in force, provided that your premiums are paid on time.
• Hence,
• Duration of insurance policy is the timeframe
during which an insurance policy is effective.
• Most insurance companies offer six-month and
year-long car insurance policies; some may also
offer month-to-month policies. i.e. they are rare
and often only for high-risk drivers.
• Policy periods are also important in determining
your payment due date.
Duration and Renewal of Insurance Policies
• An insurance renewal is the end of the term of your policy, at which point,
you'll need to determine if you'd like to continue under the same policy with
the same insurance carrier.

• Renewal, in the context of insurance, refers the continuation of coverage.

• The policyholder extends their contract with the insurance company to

continue their current coverage for a specified period.

• The insurance company typically invites the policyholder to renew the

policy near the end its term.
What is an insurance renewal?
• When your policy term ends, your insurance policy is up for renewal.
• At this point, you can choose whether or not you want to renew insurance
under the same policy, negotiate the terms, or switch to a different insurance
carrier.
• Most carriers will notify you at least 30 days ahead of your insurance
renewal to discuss your new premium, any changes in rates, and whether
you qualify for any discounts.
# When is your insurance renewal?
• The renewal date on your policy is based on when your policy first took
effect.
• Typically, business insurance policies, such as general liability, worker’s
compesation and errors and omissions insurance are renewed on an annual
basis.
• That means that if you want to continue coverage under the same policy, it
will need to be renewed at the one-year mark.
When is your insurance renewal?
• The renewal date on your policy is based on when your policy first took
effect.
• Typically, business insurance policies, such as general liability, worker’s
compensation and errors and omissions insurance are renewed on an annual
basis.
• That means that if you want to continue coverage under the same policy, it
will need to be renewed at the one-year mark.
• For example-
Suppose you have a Term insurance plan that offers the option of renewal,
for tenure of five years. Once the tenure of the policy comes to end, on
maturity of the policy the insured person can renew the plan for an
additional five years.
What happens if you don’t renew your insurance?
• Simply put, if you don’t renew your insurance by the renewal date, your
insurance ends and you will no longer be covered.

• Unless you’ve already lined up a new policy with another carrier, you will
experience a lapse in coverage, which leaves you open to risk and could
increase future insurance rates.
Good Morning Class!!!
Keshab Singh Air
Assistant Professor
Far Western University(FWU)
Kailali Multiple Campus
Faculty of Law
B.A.LL.B. 4th Sem
Law of Insurance
Unit-2 Insurance Contract

Topic: Premium
 Premium
An insurance premium is the amount of money an individual or business
pays for an insurance policy.

Insurance premiums are paid for policies that cover healthcare, auto, home,
and life insurance.
The premium is the amount charged by the insurance company for the policy
you have chosen.
It is usually paid on a yearly basis but can be paid by number of ways.

If the policy holder is unable to pay the premium before the due date some
amount of fine is charged and if he does not pay between the grace period
given to him/her the policy terminates.
• Once earned, the premium is income for the insurance company.
 Premium
• It also represents a liability, as the insurer must provide coverage for claims being
made against the policy.
• Failure to pay the premium on the individual or the business may result in the
cancellation of the policy.
• An insurance premium is the amount of money an individual or business must pay
for an insurance policy.
• Insurance premiums are paid for policies that cover healthcare, auto, home, and life
insurance.
• Failure to pay the premium on the part of the individual or the business may result in
the cancellation of the policy and a loss of coverage.
• Some premiums are paid quarterly, monthly, or semi-annually depending on the
policy.
• Shopping around for insurance may help you find affordable premiums.
 When you sign up for an insurance policy, your insurer will charge you a
premium.
This is the amount you pay for the policy.
Policyholders may choose from several options for paying their insurance
premiums.
Some insurers allow the policyholder to pay the insurance premium in
installments-monthly or semi-annually-while others may require an
upfront payment in full before any coverage starts.
The price of the premium depends on a variety of factors, including:
• The type of coverage
• Your age
• The area in which you live
• Any claims filed in the past
• Moral hazards and adverse selection
Payment of Premium

• Premium is an amount paid periodically to the insurer by the insured for

covering his risk.

• In an insurance contract, the risk is transferred from the insured to the

insurer. For taking this risk, the insurer charges an amount called the
premium.

• The premium is a function of a number of variables like age, type of

employment, medical conditions, etc.

• The actuaries are entrusted with the responsibility of ascertaining the correct
premium of an insured.

• The premium paying frequency can be different. It can be paid in monthly,

quarterly, semiannually, annually or in a single premium.
• The Mode of Premium Payments.

• The mode of premium payment definition is the way in which the

policyholder and the insurance company agree to pay for the
insurance coverage.

• The mode of payment can be annual, semi-annual, quarterly, or

monthly.
 Premium payment term/mode/frequency
• We can pay life insurance premium as per your convenience.
• We offer Yearly, Semi Annually, Quarterly, Monthly depending upon the
plan type
• Regular Premium Payment- You can pay the premium regularly
throughout the policy term either monthly, quarterly, half-yearly or yearly.
• Limited Premium Payment- You can choose to pay the premiums for a
limited amount of time. In this option, you do not pay till the end of the end
of the policy term, but for a certain pre-fixed number of years. For example,
10 years, 15 years, 20 years and so on.
• Single-Premium Payment- The policy holder can also choose to pay the
premium for the entire duration of the plan as a lump sum in one single go.
Days of Grace
It is a length of time after the due date during which the payment should be
made without penalty.
A grace period can be a period of 15 days in case of monthly premium payment
mode and 30 days in case of annual premium payment mode.
If the policy holder does not pay within this period the policy gets terminated.
The grace period, means it is a time the insurance provider gives after the due
date to pay your premium before the policy becomes inactive.
The grace period can differ between insurers and the type of policies. This time
frame is indicated in the policy’s terms and conditions, usually between 15 days
to 30 days.
Make sure you read the policy wordings so that you do not miss out on paying
the premium on time.
An insurance grace period is a defined amount of time after the premium is
due in which a policyholder can make a premium payment without
coverage lapsing.
The insurance grace period can vary depending on the insurer and policy type.
Return of Premium
Return of premium is a type of insurance policy in which all or a portion of
the amount of premiums paid during a policy period, will be returned to the
policyholder if claims are not filed, or if the amount of claims filed is
smaller than the amount of premiums paid.
This type of policy is commonly used in life insurance.
Return of premium policies are not used for whole life or permanent life
insurance, since those types of life insurance cover a person until they die
and a death benefit will have to be paid out.
However, for term life insurance, a person could potentially have life
insurance for ten, twenty, or even thirty years and never file a claim.
For this reason, many life insurers offer return of premium policies so that
those policyholders can get a return of all or part of the premiums they paid
 Return of Premium

Return of premium is a type of insurance policy in which all or a portion of the amount of
premiums paid during a policy period, will be returned to the policyholder if claims are
not filed, or if the amount of claims filed is smaller than the amount of premiums paid.
This type of policy is commonly used in life insurance. Return of premium policies are
not used for whole life or permanent life insurance, since those types of life insurance
cover a person until they die and a death benefit will have to be paid out. However, for
term life insurance, a person could potentially have life insurance for ten, twenty, or even
thirty years and never file a claim. For this reason, many life insurers offer return of
premium policies so that those policyholders can get a return of all or part of the
premiums they paid