SUBMITTED TO MISS KAVITA

BY
SHWETA
4496

NATURE OF LIFE
INSURANCE
CONTRACT

MEANING
Life insurance is a contract in which
the insurer, in consideration of
premium, undertakes to pay a
certain sum of money either on the
death of a insured or on the expiry
of certain period, whichever is
earlier. It provides financial
protection against the risk of death.

FEATURES OF LIFE INSURANCE

CONTRACT
Nature of general insurance
Insurable interest
Utmost good faith
Warranties
Proximate causes
Assignment and nominations
Return of premium

NATURE OF GENERAL CONTRACT

ACCORDING TO SEC2(H) AND SEC 10 OF INDIAN
CONTRACT ACT, THE VALID CONTRACT MUST HAVE
THE FOLLOWING
Agreement
(offer and
acceptance)
Competency of
the parties
Free consent of
the parties
Legal
consideration
Legal objective

INSURABLE INTEREST

The insured must have an insurable

interest in the life to be insured for
a valid contract.
In the absence of an insurable
interest, the insurance contract will
be a wagering contract which is
invalid and unenforceable.
Insurable interest can be divided
into two categories:

INSURABLE INTEREST

INSURABLE INTEREST IN
OWNS LIFE

A person has unlimited interest in his own life,

there is no need to prove this fact.
The loss of life cannot be measured in
monetary terms so this loss is unlimited.
A person may take insurance policy of any
amount but in practical situations the means of
the applicant and the circumstances are taken
into consideration.

INSURABLE INTEREST IN
OTHERS LIFE
PROOF NOT REQUIRED

PROOF IS REQUIRED

Husband has insurable

interest in the life of
wife.
Wife has insurable
interest in the life of
husband.

Creditor in the life of

debtor.
Partners have insurable
interest in the life of
each partner.
Employee has interest in
the life of Key-man.
Surety has insurable
interest in the life of the
Principal.

GENERAL RULES FOR

INSURABLE INTEREST
TIME

OF INSURABLE INTEREST:
Should be present at the time of
proposal.
INSURABLE INTEREST MUST BE
VALUABLE: It must be determined
properly in business relationship.
INSURABLE INTEREST SHOULD BE
VALID: should not be against public
policy

 LEGAL

RESPONSIBILITY MAY FORM THE BASIS

OF INSURABLE INTEREST: for eg- a person
under legal responsibility to incur expenses at
the funeral of his wife and children, can
purchase insurance policy on the lives upto that
extent.
INSURABLE INTEREST MUST BE DEFINITE:
LEGAL CONSEQUENCES: it would be null and
void without insurable interest.

PRINCIPLE OF UTMOST GOOD

FAITH

The insurer and the insured must be of

the same mind at the time of the
contract.
Both the parties must disclose all the
material facts affecting the risk, to each
other.
The proposer should disclose the material
facts which are going to influence the
decision of the proposer.

MATERIAL FACTS TO BE DISCLOSED

Name,address
addressand
andoccupations
occupationsofofthe
theinsured
insuredperson
person
Name,
Dateofofbirth
birth
Date
Factsabout
aboutthe
thehealth
healthand
andhabits
habits
Facts
Familyhistory
history
Family
Planofofinsurance
insurance
Plan

FACTS NOT REQUIRED TO BE

DISCLOSED
Disclosure in regard to universal facts.
The facts which are superfluous to disclose by
reason of any condition.
The facts which reduce the risk of the insurer.
The facts which are marked by the insurer.
The facts which are known to the insurer in the
ordinary course of the business.

WARRANTIES

Informative warranties
The proposer is
required to disclose all
the material facts to
the best of his
knowledge

Promissory warranties
Future warranties may
only be the statements
about his expectation
and intention.

WARRANTIES

The representations which are

contained by the policies and
expressly or implictly forming part
of the contract are known as
warranties.
It is a stipulation collateral to the
main purpose of the contract.
They are the basis of contract
between the proposer and insurer.

PROXIMATE CAUSE

The efficient or effective cause which causes

the loss is called proximate cause.
The cause or the reason for the loss must be
related to the subject matter of the
insurance policy.
If the loss is due to some other cause then
the insurer can deny to pay the
compensation.
The principal of proximate cause does not
apply in case of life insurance contract.

EXCEPTIONS TO DOCTRINE OF
PROXIMATE CAUSE
WAR RISK:-The insurer can waive its liability if the death
occurs while he was in the field or is engaged in operation of
war and aviation. Only premium paid or surrender value which
is higher is payable and the total policy amount is not payable.
SUICIDE:- If the insured commits suicide within 1 year of taking
the insurance policy, or there was an intention to commit
suicide, then the payment of policy would be restricted, only
upto the interest of the 3rd party in the policy provided the
interest was expressed at least 1 month before the suicide.

ACCIDENT BENEFIT:- In an accident benefit policy, the amount

of claim is double the amount of policy.

ASSIGNMENT AND NOMINATION

A insurance policy can be assigned freely for a legal

consideration or love and affection.
The notice of assignment must be given to the insurer
who will acknowledge the assignment.
Once the assignment is completed it cannot be
revoked by the assignor.
The assignor will receive the amount of policy on its
maturity or on the death of the insured, whichever is
earlier.
The holder of a life insurance policy on his own life
can nominate a person to whom the money will be
payable in the event of his death.
A nomination can be cancelled before maturity.

RETURN OF PREMIUM
Generally premium payable is not returnable but in
following cases premium payable is returnable:
FOR REASON OF EQUITY: Equity means a condition
that the insurer will not receive the price of
running the risk he runs. Thus the contract does
not come into effect and it is void.
BY AGREEMENT IN THE POLICY: The insured may
pay full premium while effecting insurance, but it
may be agreed to return it wholly or partially on
the happening of certain events.

OTHER FEATURES
ALCATORY CONTRACT:
It is a contract depended on chance. In life
insurance policy full amount of policy is
payable even if all the premium has not been
paid.
UNILATERAL CONTRACT:
Only the insurer makes an enforceable
promise. The proposer has already performed
his duty of payment of premium.

CONDITIONAL CONTRACT:
It is a conditional contract because the insurer shall
pay the assured sum only when the contract is
continuing by the payment of premium.
CONTRACT OF ADHESION: It means that the terms of
the contract are not arrived by mutual negotiations
between the parties as is done in other contracts.
INDEMNITY CONTRACT IS NOT APPLIED:
Value of life cannot be measured in monetary
terms. Its not possible to ascertain the time upto
which the insured would have survived and also the
amount of money he would have earned in his life
time.

THANK YOU