Essentials of Life Insurance

Definition of Life Insurance

• A contract in which the insurer in
consideration of a certain premium either in
lump sum or other periodical payments,
agrees to pay to the assured or to the person
for whose benefits the policy is taken, a stated
sum of money on the happening of a
particular event contingent on the duration of
human life.
 Features of Life insurance
• Elements of valid contract
• Insurable interest
• Utmost good faith
• Warranties
• Assignment and nomination
• Death is certain
• Premium
• Terms of policy
• Return of premium
 Difference between life and non-life
insurance
Insurance(Non-Life Insurance)
• Loss due to risk is not
certain to happen, loss i.e.,
likely to happen or not
• Generally, goods or
property of any other kind
are the subject matter of
non-life insurance.
• Insurance contract is usually
for one year.
Assurance(Life Insurance)
• Loss due to risk is certain to
happen. Risk of death is
bound to happen sooner or
later.
• Human life is the subject
matter of life insurance
contract
• Contract is a continuing
contract i.e., long term
contract
• Fire, marine insurance and
other contracts are
contracts of indemnity.
• In fire insurance, insurable
interest must be approved
both at the time policy is
effected and at the time
when loss occurred. In
marine insurance, it must
be present only at the time
of loss occurring. It is not
necessary at the time of
• It is not a contract of
indemnity.
• Insurable interest must
present only at the time of
taking out the policy, but
need not have insurable
interest at the time of
maturing of the policy
• The term insurance is used
to other kinds of non-life
insurance contracts.
• Policy cannot be
surrendered by the insured
before its maturity.
• Insurance contains only the
protection element
• The term assurance, is
referred only to life
insurance business.
• Policy can be surrendered
by the assured before its
maturity
• Contains the elements of
both investment and
protection
 Insurance Documents
• Provides evidence of contracts
• Gives the insurer full particulars of the risk
against which insurance protection is desired.
 Insurance documents
• Proposal form
• Policy form
• Cover note
• Certificate of insurance
• endorsement
 Proposal form
• Normally used for making an application for
the required insurance cover.
• Form contains questions designed to elicit all
material information about the particular risk
proposed for insurance.
• In marine cargo insurance, it is not a practice
to use a proposal form, although sometimes it
is usual to obtain a questionnaire or a
declaration form duly completed.
• In fire insurance, the practice varies among
the companies. The proposal forms are not
generally used for large industrial risks where
inspection of the risk is arranged before
acceptance of the risk
 Items in proposal form
• Proposer’s name in full
• Proposer’s address
• Proposer’s profession, occupation or business
• Previous and present insurance
• Loss experience
• Sum insured
• Other section’s-Signature, date, place etc.
 Cover note
• Document issued in advance of the policy
• Issued when negotiations for insurance are in
progress and it is necessary to provide cover
on a provisional basis or when the premises
are being inspected for determining the actual
rate applicable.
• Issued as evidence of protection for a
temporary period of time and to prov e that
cover is in force
 Certificate of insurance
• In motor insurance, in addition to the policy, a
certificate of insurance is required by the
Motor Vehicle Act., 1988. Provides evidence of
insurance to the police and registration
authorities.
• In marine insurance, certificate of insurance is
issued to provide evidence of cover on
shipments insured under cargo open cover or
floating policies
 Endorsements
• It is the practice of insurers to issue policies in
a standard form, covering certain perils and
excluding certain others.
• If it is intended, at the time of issuing the
policy to modify the terms and conditions of
the policy, it is done by setting out the
alteration in a memorandum which is
attached to the policy and forms part of it
• The memorandum is called an endorsement
 Assignment of Life Policies
• Meaning: Method of transferring rights of the assured in respect of the
life policy to another party or assignee or a third party.
• Procedure: Can be made either by endorsement on the policy itself or by
executing a separate instrument. It must be signed by the assignor or by
his duly authorised agent and attested by at least one witness.
• Notice: On valid assignment, a written notice must be given to the insurer
together with a certified copy of the endorsement or instrument
• Priority: The date on which the notice of assignment is delivered to the
insurer regulates the priority of all claims between the assignee and a
third person.
• Acknowledgement: On the receipt of the notice, the insurer shall record
the fact of such transfer and name the transferee or assignee.
• Recognition: From the date of receipt of the notice, the insurer shall
recognize the transferee or the assignee name in the notice as the only
person entitled to the benefits name under the policy