Life Insurance: In a life insurance contract, the policy’s payout is guaranteed; the only issue is a matter of time. Depending on either occurs first—the assured’s death or the end of a predetermined period—the sum becomes due. A contract for life insurance is not an indemnity contract.
Life insurance is a contract whereby the insurer agrees to pay a specific amount of money at the demise of the person whose life is insured, or upon the expiration of a specific time, whichever occurs earlier. A contract for life insurance is not an indemnity contract. Only a set amount of money is paid in lieu of compensation for a life lost.
Basic Concepts, Features, and Elements of a Life Insurance Contract
A life insurance policy is built on a few basic tenets.
These ideas include:
- Requirements for a Valid Contract
The life insurance policy must meet all legal contract requirements.
The Indian Contract Act of 1872 states that a legitimate contract must include the following elements:
(i) The acceptance of an offer.
(II)The ability to contract is (ii).
(iii) Parties’ unrestricted consent.
(iv) Accepting an object lawfully.
(v) Contracts that haven’t been expressly ruled invalid.
- Maximum Good Faith
A contract for life insurance is one that is made in the best possible faith. When providing the insurance provider with information, the insured should be truthful and honest. He is more knowledgeable than the other party regarding the contract’s issue (the insurer).
As a result, he has a responsibility to inform the insurer of all relevant information that he is aware of. Any fact that is concealed entitles the insurance to deny the assured of the contract’s benefits.
- Interest That Is Insurable
The insured in a life insurance policy must have an insurable stake in the life being insured. The insurance contract is null and void if there is no insurable interest. Insurable interest must exist at the moment the insurance is affected in the case of life insurance. It’s not required that the guaranteed likewise have insurable interest when it reaches maturity.
In the following three situations, insurable interest is assumed and no supporting evidence is required, namely:
(i) Own life I
(ii) Husband’s role in wife’s life, and
(iii) The wife in the husband’s life.
It has been determined that the following people have insurable interests:
- Maximum Good Faith(i)
(i) A person is assumed to be interested in his or her own life and all of its aspects.
(ii) A creditor has a life insurance policy covering the debtor,
(iii) A drama company owner has an insurmountable stake in the lives of actresses.
(iv) A worker hired for a set period of time has an insurable interest in the survival of his employer.
- An indemnity agreement:
A life insurance policy is not an indemnity agreement. Only a set amount of money is paid in lieu of compensation for a life lost. Because of this, the life insurance payment amount is predetermined in advance. Once the “amount of money” due
is constant and unchanging once it has been determined. Therefore, an insurance policy is not an indemnification agreement.
Only a predetermined amount is provided because the loss caused by the death of the life guaranteed cannot be quantified in terms of mone
How Does Life Insurance Work (i.e., the Process)?
To put a life insurance policy into effect, several steps are needed.
They are as follows:
It is vital to obtain a free proposal from the Life Insurance Corporation before purchasing a life insurance policy. This form is also provided by agents. The form asks a lot of questions regarding the applicant’s health, family history, and preferred method of premium payment.
As far as we are aware, the insurance arrangement is based on absolute good faith. Therefore, the proposer must accurately respond to each inquiry. He shouldn’t withhold any relevant facts. The insurer will have the right to deny the guaranteed of the benefits of the contract if any fact is concealed.
b. Health Assessment:
A medical checkup for the insured person is scheduled following the submission of the proposal form. Only a doctor who has been approved by the insurance provider may do such an examination. The doctor sends the applicant’s medical report right away to the company’s office.
c. Approval of the Proposal:
The proposal form, a medical report, and insurance agent feedback are delivered to the company. The company reviews the proposal form, and if it is satisfied, it accepts the proposal.
d. Age Verification:
The applicant must provide the insurance company with adequate proof of his age.
Any of the following methods can be used to provide age proof:
I A birth certificate from the local registry
(ii) A high school diploma.
(iii) The assured’s horoscope
(v) A certificate pertaining to the Christian practise of baptism.
The applicant is informed when the proposal is accepted and is then required to pay the premium. The policy becomes active upon payment of the premium, at which point the risk is covered.
f. Insurance Document:. Medical Exam:
The insurance firm creates the insurance policy after receiving the first premium instalment. The agreement between the insurance company and the assured to pay a specific amount of money to the assured upon the occurrence of the event specified in the policy is the form of the policy.
It is signed by representatives of the insurance firm. When the policy is prepared, registered mail is used to deliver it to the assured. It includes the name, address, occupation, age, insurance amount, number of instalments, premium amount, and premium due date of the assureds.
There are various types of life insurance policies.
The following categories of life insurance policies exist:
- Whole Life Insurance:
The payment for this policy must be paid throughout the duration of the life of the person who is insured. Only when the insured person passes away is the cash assured payable. These insurance plans are purchased to cover the dependents. This coverage is also known as a “Ordinary Life Policy.”
- Policy on Endowments:
The most common type of life insurance is this one. This coverage is purchased for a certain time frame called as the “endowment period.” If a defined amount of time or the death of the life assured occurs first, the sum assured is payable. The insured sum will be returned to the person after the policy’s maturity if they do not pass away before it.
3. Joint Life Insurance:
This policy applies to partners in a business as well as husband and wife. They might develop a shared policy. Similar to an endowment policy If the first death of any of the lives assured occurs earlier than the end of the endowment period, the sum assured under a Joint Life Policy (on two or more lives) is payable. Partnership firms typically adopt such rules to ensure the reimbursement of the capital of the dead partner..
- Policy for With or Without Profit:
You can get a life insurance policy “with profit” or “without profit.” If the insurance is a “with profit” policy, the assured is entitled to a portion of the insurer’s profits. Contrarily, this concern is not raised in the case of “without profit” policies.
- Annuity Regulation:
In an annuity policy, the money is paid by the insurer in monthly, quarterly, half-yearly, or annual instalments instead of a lump sum. These payments are made either until death or for a certain period of years. This policy is quite helpful for those who want to guarantee a steady income for themselves and their dependents once a predetermined period has passed.
- Policy for Sinking Funds:
Most businesses and companies opt for these plans in order to save money for debt repayment or to set aside money for the eventual replacement of an asset.
Convertible whole-life insurance:
This insurance is first issued as a whole life policy with the option to convert it to an endowment policy at a later time (say 5 years). The policy continues as a whole life policy with premiums stopping at a specific age if this option is not used.
- Insurance for groups:
The lives of all employees in a corporate concern may be protected by this policy. The employer receives one policy along with unique certificates stating.the extent of each employee’s insurance coverage. Employees’ dependents are eligible for these insurances’ benefits.