Introduction -  

             Insurance is a contract in which one party (the insurer) agrees for payment of consideration (the premium) to make monetary provision for the other (the insured) upon the occurrence of some event against some risk. Read in detail >>> What is Insurance? Meaning, Definition, and Kinds of Insurance.


Meaning of Life Insurance -  


            Life insurance is a contract in which the insured agrees to pay certain sums, called premiums, at specified times and in consideration, thereof the insurer agrees to pay a certain sum of money on certain conditions and in a specified way, upon happening of a particular event contingent upon the duration of human life.


Definitions of Life Insurance -


     Currently, there is no statutory, satisfactory definition of Life Insurance. Some Important Definitions of Life Insurance are as follows - 

       Insurance may be defined as a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party called insured a fixed amount of money after happening of a certain event.

Joseph Vs Law Integrity Insurance Company (1912) - It was observed by Bunyon J that " A contract of life Insurance may further be defined to be that in which one party agrees to pay a given sum of money upon the happening of a particular event contingent upon the duration of human life in consideration of immediate payment of a smaller sum or other equivalent periodical payment by the other. 

According to R.S. Sharma " Life Insurance Contract may be defined whereby the insurer, in consideration of premium paid either installment, undertakes to pay an annuity on the death of the insured of a certain number of years.

According to Magee J.H - "The Life Insurance contract embodies an agreement in which broadly stated, the insurer undertakes to pay a stipulated sum upon the death of the insurer to a designated beneficiary.

Read... Kinds/Types of Life Insurance Contract


Nature and Scope of Life Insurance - 


  
       It is not possible to predict the future or prevent many serious hazards events such as fire, disability, and premature death, etc. It is the function of insurance in its numerous forms to enable individual to safeguard themselves against such misfortunes by spreading the loss to the person who agreed to co-operate each other at the time of loss by making contributions agreed to co-operate each other at the time of loss by making contributions to the common fund.

     All Insurance Contracts except Life insurance are Contract of Indemnity.  The Loss due to loss of life can not be measured in the term of actual loss, therefore the insurer undertakes to pay a fixed amount in such kind of contingency. It is, therefore in the nature of Contingency Insurance. It provides payment on a contingent event.

   In developing countries like India, it is very common and popular practice to bundle together a risk coverage and savings in the form of life insurance
   
       Insurance is just the opposite of gambling. In gambling, a person exposes himself to the risk, there is of losing whereas, in the insurance, the insurance is always opposed to risk.



Essentials of Life Insurance Contract -



           Essentials of Life Insurance Contract are as follows -

a) Offer and Acceptance
b) Agreement
c) Competency
d) Free Concent
e) Legal Consideration
f) Lawful Object
g) Consensus ad idem (Meeting of Mind)
h) Utmost Good faith
i) Insurable interest

(a) Offer and Acceptance - 

       Like all other contracts, a contract of life insurance is also concluded through offer and acceptance. In life insurance contract offer can be made either by the insurance company or the applicant and the acceptance will follow.

(b) Agreement -
  
         There should be an agreement between the (insurer and insured) parties.

(c) Competency -

          It is important that in the contract of life insurance the parties must be competent to enter into a Life Insurance contract. (section 10 of the Indian Contract Act 1872 says that for the formation of a valid contract parties must be competent.)

Who is competent for a valid contract -

According to Section 10 of the Indian Contract Act, 1872 every person is competent to a contract - one who is major, Sound Mind, not disqualified by law,.

i) Major - who is of the age of majority according to the law.

ii) Sound Mind - One who is of sound mind.

iii) Not disqualified by law - who is not disqualified from contracting by any law to which he is subject of.

However, the person who is not competent to contract can still be beneficiary of the contract with the help of provisions of section 11 of the Contract Act 1872.

(d) Free Concent - 

         Free consent, free consent means both the parties agreed on the same thing for some purpose. When both parties to contract agreed and willing to abide by terms and condition of contract in the same sense and spirit, they are said to have a free consent. (Section 13 of the Indian Contract Act 1872). Where the consent is obtained through coercion, fraud, undue influence, misrepresentation or mistake about an essential fact, the contract becomes voidable at the option of the party whose consent was so caused, except fraud.

(e) Legal Consideration - 

  There is no validity of a contract if there is no consideration, which is the act or promise offered by one party and accepted by the other as the price of his promise. In the Contract of Life Insurance Premium is Consideration. The insured gives premium as a consideration in return of which insurer undertakes to pay a certain amount at a specified contingency.  The contract of life insurance cannot be termed as a valid contract without the payment of the first premium.


(f)  Lawful Object -  

         The object of the life insurance contract should not be unlawful. According to Section 23 of the Indian Contract Act 1872 the object is unlawful which is -

(i) Forbidden by law

(ii) Immoral

(iii) Opposed to public policy or

(iv) which defeats the provision of any law



(g) Consensus ad idem (Meeting of Mind) -

   For the formation of a valid contract, both parties to contract should be of the same mind and there must be consent arising out of common intention. The understanding between the insurer and the insured person should be of the same thinking or mind. The reasons for taking the insurance policy should be understandable to both the parties.


See Also...

How insurance is important for individuals, organizations industry and the economy.

Kinds/Types of Life Insurance? | Insurance Law

Establishment, Constitution and Capital of the Life Insurance Corporation of India




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