What is a life insurance contract ? Explain its distinguishing characteristics.
What is a life insurance contract ? Explain its distinguishing characteristics.
Ans:- Meaning of life insurance:- It is a contract type service in which two parties contract. As one insurer party ( Insurance company ) and one insured person ( Policy holder ).
Life insurance companies give promises to policyholders in exchange for premiums paid by them. It is paid to their nomination person in the contract policy on the death of policyholders.
Note:- However, Through modern insurance products policyholders can get their policy on the completion of their term or period of contract.
In other words:- Insurance companies give guarantees to policyholders to pay a certain amount of money to their nominated persons in the contract against the premium paid by them. It also contains some accidents which may occur during the contingent period of policyholders life.
It is a written contract which may have a certain period of contract or until the death of policyholders. characteristics of insurance
Here are some distinguishing feature/Principles/Characteristics
Various characteristics of life insurance contract are as follow:-
- Insurable Interest
- Principles of Utmost Faith
- Principle of Warranty
- Principle of Proximate Cause
1.Principle of insurable interest :- Whether insurance act does not tell us about insurable interest, but it is needed for a valid contract. This principle involves indemnity. In this contract one party gives guarantee to save the other party from loss caused to him. This indemnity can be paid upto the sum assured by the policyholder.
This principle does not apply to LIC. So in the absence of this principle it can be treated as a gambling. Thus insured has interest towards the insurance company due to which he takes a policy from the insurance company. Insurable interest created valid policy. However, not more than a sum assured policy can be recovered from the insurer company.
2. Principle of Utmost Faith:- In this principle both parts of the contract express their best knowledge to each other. On which they believe they can create a valid contract. Because if anything or matter is concealed by any party then a contract between them may be invalid. Such a contract may be breached by any party. So all parties who enter into the contract must disclose all facts which influence the contract.
A high degree of good faith is required for the insurance contract. The duty lies on the part of the proposer to disclose and furnish all material information for proper assessment by the insurer. Everything was material which would influence the judgement assurer in accepting the risk.
3. Principle of warranty:- warranty is a condition and promise in the insurance contract. Performance of the insurance contract depends upon the fulfilment of this warranty. The liability of the insurance company ceases on the breach of this warranty. So insurance contracts only continue if such a warranty is fulfilled. Warranty may be expressed or implied.
Note:- Warranty, in life insurance may be informative and promissory.
Warranties which are expressly stated in the contract are called express. Which are not stated in the policy are called as implied warranties. If false information is given by the policyholder then the insurance company may treat the contract as void or voidable.
Where, informative warranty contains to disclose to the best of his knowledge, all material facts to the insurer. characteristics of insurance
And Promissory warranty are based on the future expectations and intentions.
4. Principle of Proximate Cause:- The legal rule of proximate cause helps both the insured and insurer. This principle states that the indemnity loss has some cause, which can be claimed easily. Such a cause must be added into the terms and conditions of the insurance contract. If such a cause is identified by the insurance company then no efforts will be made further to find cause to cause. It must be the nearest to the cause. Thus, it helps in maintaining a balance between the rights of insurance companies and insurance policyholders.
This principle mostly applied to the marine contract and fire contract of insurance. It is also applicable in the life of contract as well because in ‘personal accident policies’ the approximate cause of death should be an accident. characteristics of insurance
Conclusion:- Now we can understand the principle of life insurance contracts in India. Which features are bound to apply on the life insurance contract. Without which life insurance contract may be void and voidable.
You Can learn more important questions related to insurance which are following. characteristics of insurance
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