Life Insurance

 Definition of Life Insurance

S.2 (11) of the Insurance Act, 1938 defines Life Insurance Business as the business of effecting contracts of insurance upon
human life, including any contract whereby the payment of money is assured on death or the happening of any
contingency dependent on human life.

Benson – Life insurance is a contract between two persons, one person agreeing to pay a given sum on the happening of
an event, contingent upon the duration of human life, the other person agreeing to pay the prescribed amount in
installments or in a lumpsum, the period of payment being death or the efflux of the agreed period, whichever is earlier.

 Case – Dalby vs London & India Life Assurance Company (1884) 15 CB 365

 Nature of Life Insurance Contract

 Kinds of Life Insurance

 Whole Life Insurance – Assured agrees to pay fixed premiums periodically throughout his life. Policy amount is payable
on the death of assured to his legal heirs, assignee or nominee. This is intended for the benefit of the members of the
family of assured after his death.
 Endowment Insurance – Assured agrees to pay fixed premiums periodically, not throughout his life but for a term of years
or until he attains a particular age. The policy amount is payable to the assured at the end of the stipulated period of
time, but if he dies before that time, amount is payable to his legal heirs. This is intended for the benefit of the assured
himself in his old age, if he survives or for the benefit of family members if he dies before the time.

 Term Insurance – Insurer agrees to pay the amount only in the event of the assured dying before a certain time or age.
These policies are for a short period and have low premium. They can be converted into whole life or endowment policy.
Sum Assured is payable only in the event of death of the assured occurring during the policy period. Assurance comes to
an end if the assured survives beyond the policy period.

 Joint Life Insurance – Insurance on the joint life of husband and wife, money becomes payable on the death of either of
them. The payment of premium ceases on the death of one of the lives assured and the sum assured is paid as claim.

 Money Back Plan – It is a type of endowment policy. Sum assured is paid in suitable installments till maturity.

 Group Insurance – This an insurance on lives of a group of persons, usually the employees under the same employer,
under one policy. Assured will be the employer. Example – Employee State Insurance Corporation.

 Annuity Insurance – Insurer undertakes to pay a certain fixed sum as annuity by monthly payment either for the
expiration of the specified period or earlier if death of assured occurs. This is as though to provide pension or family
pension to the assured.
 The Policy

Schedule Type :-
• Date
• Parties
• Preamble or Recitals
• Operative Clause or Consideration
• Covenants of title and conditions
• Schedule
• Habendum
• Execution
• Attestation of signatures
• Delivery.

Formation of a Life Insurance Contract

• Agreement
• Competency of parties
• Free Consent
• Consideration
• Lawful Object.
 Event Insured against in Life Insurance:- Death

 Death of the life insured may be caused by natural, accidental causes or even due to the criminal act of a 3 rd party.
A contract to be valid must satisfy element of legality of object and consideration.
No man shall be allowed to take advantage of his own wrong. This rule is expressed in the maxim – ex turpi causa non
oritur action. This means no cause of action arises out of a wrong.

Case – Manager, United India Insurance Company Ltd. V. Ummadi Shakhuntala AIR 2005 AP 336
Insured was murdered by a group of persons belonging to the other faction. Insurer repudiated the claim by the
dependants of deceased insured on the ground that insured belonged to a group of faction and was involved in criminal
cases. It was held that insurer is liable. Death of the insured should only be understood as an “accident” for the purpose
of contractual obligation by insurance company for awarding compensation.

Exceptions :-
• Where death of assured is caused due to the violation of a rule of criminal law by the assured himself.
• Where death is the result of a suicide.

Circumstances affecting the risk

• Age, family history, habits, personal health, geographical position, occupation.
• S.45 of the Insurance Act 1938
 Amount recoverable under life policy
• Sum assured on death / expiry of term
• Bonus if declared by the company
• Share in the profits (In case of a participation policy)
• Surrender value (S.113 of Insurance Act, 1938)
• Automatic Extension Clause (Non-Forfeiture Clause)

Persons entitled to payment

• Assured himself
• Executors and Administrators (Legal heirs)
• Assignees
• Nominees

Settlement of claim and payment of money

• Liability of insurer to pay on death / expiry of term
• In case of death of assured, statement of claimant (Form A)
• Discharge form
• S.47 of Insurance Act 1938 – Payment in court
• S.106 – Interest on policy amount in case of unreasonable delay by the insurer.