Life insurance is a contract under which the insurer (Insurance Company) inconsideration of a premium paid undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a specified period of time whichever is earlier. In case of life insurance, the payment for life insurance policy is certain. The event insured against is sure to happen only the time of its happening is not known. So life insurance is known as ‘Life Assurance’. The subject matter of insurance is life of human being. Life insurance provides risk coverage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the titleholders of the policy.
Basic Principles of Life Insurance Contract.
The insured must have insurable interest in the life assured. In absence of insurable interest, Contract of insurance is void. Insurable interest must be present at the time of entering into contract with insurance company for life insurance. It is not necessary that the assured should have insurable interest at the time of maturity also.
Utmost good faith
The contract of life insurance is a contract of utmost good faith. The insured should be open and truthful and should not conceal any material fact in giving information to the insurance company, while entering into a contract with insurance company. Misrepresentation or concealment of any fact will entitle the insurer to repudiate the contract if he wishes to do so.
Not a contract of indemnity
The life insurance contract is not a contract of indemnity. A Contract of life insurance is not a contract of indemnity. The loss of life cannot be compensated and only a fixed sum of money is paid in the event of death of the insured. So, the life insurance contract is not a contract of indemnity. The loss resulting from the death of life assured cannot be calculated in terms of money.
Features of life insurance
Following are the important features of valid contract of life insurance
- Elements of a valid contract
- Insurable interest
- Utmost good faith
- Assignment and Nomination
- Cause is certain
- Premium (consideration)
- Term of policy
- Return of premium (surrender)