Essentials of Life Insurance:
The main principles or essential features (elements) of life insurance contract
are as follows:
1. Parties to the Contract:
In a life insurance contract, there are normally three parties involved and they are the insurer, insured and beneficiary. The insurer means the insurance companies that issue life insurance policy. The insured is a person for whose life insurance policy is purchased. A beneficiary is a person who is nominated to get the amount of policy in case of insurer’s death.
2.Insurable Interest:
When a person insures his or another person’s life, he must have insurable interest in it at the time of insurance of insurance policy. For example the husband has insurable interest in the life of his wife and wife has insurable interest in the life of her husband, the parents have insurable interest in their children and children have insurable interest in the life of their parents. The business partners have
insurable interest in the life of another partner etc.
3.In good faith:
The parties to the life insurance must be loyal to each other. They must declare every thing clearly and in good faith. No fact should be concealed by the insured regarding his age, health and physical appearance etc.
4. Written Contract:
The contract of life insurance is always a written contract and is clear in
terms. It cannot be an oral or applied contract. A proposal form is filled by the
insured, which contains all the terms and conditions in written form.
5. Pure Contract:
The contract of life insurance is not a contract of indemnity but it is an ordinary and pure contract. In case of fire insurance company pays only in case of Inss and if there is no loss of property, company pays nothing. But in ca se of life insurance contract, the company has to pay the full policy amount either in case of death of the insured or expiry of time period.
6. Principle of Indemnity does not apply:
As there is no substitute of the life of a person, so the principle of indemnity
does not apply in case of life insurance. The insurance company provides financial
protection to the dependents of the insured and it does not indemnify the loss
suffered due to the death of the insured.
7. Proof of Death:
In case of death of the insured, the person who has insurable interest must give an immediate notice to the insurance company of fact with an authenticated
proof of the death. In case of maturity of the policy, it is also the duty of the insured or the
8. Proof of age:
person having insurable to give proof of the age of maturity. Otherwise payment will not be made by the insurance company.
9. Reason of Death:
The insurance company will make payment of the policy amount only, when the insured dies due to the reason covered by the insurance policy. If the insured dies due to war or another reason, which ahs not been covered by the life insurance contract, the Dfa Ho company will not make payment of the policy amount.
10.Assignment of Policy:
The insured can change at any time the beneficiary of the policy or he can assign his policy to any other person for valuable consideration. In such case, he make assignment order in writing and notice of this fact must be served to the insurance company. In this way the nights of the insured are transferred to another person
