A Project Report

on

LIFE INSURANCE

Submitted to Dr. Y. Papa Rao

(Subject: Law of Insurance, Optional I)

Submitted by Anant ekka

Section A

Roll No: 26

Semester X

B.A.LL.B (Hons.)

Submitted on: 06/04/2018

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (C.G.)

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 ACKNOWLEDGEMENT
The successful completion of any task would be, but incomplete, without the mention of
people who made it possible and whose constant guidance and encouragement crowned my
effort with success.

I would like to thank my course teacher Dr. Y. Papa Rao for providing me the topic of my
interest.

Secondly, I would like to thank our Vice Chancellor for providing the best possible facilities
of I.T and library in the university.

I would also like to extend my warm and sincere thanks to all my colleagues, who
contributed in numerable ways in the accomplishment of this project.

Thanking you,

Anant Ekka
Semester X

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 TABLE OF CONTENTS

1. Introduction.............................................................................................................4
2. Objectives................................................................................................................5
3. Research Methodology............................................................................................5
4. Chapterisation
I. Meaning and definition.......................................................................................6
II. Insurable interest and life insurance...................................................................8
III. Insurable interest and life policies....................................................................10
IV. Contract of life insurance..................................................................................11
V. The suicidal clause.............................................................................................15
5. Conclusion...............................................................................................................17
6. Webliography..........................................................................................................18

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 INTRODUCTION

The whole idea of insurance has developed on the fact that human life is full of uncertainties
and the life of a person itself is very uncertain. Eventualities do cast their shadows, and
therefore one has to equip oneself with possible means so as to face the unforeseen. It is well
said that “Life is full of risks. For property, there are fire risks, for shipment of goods, there
are perils of sea, for human life, there is the risk of death or disability and so on and so forth”.

Life insurance is a husband’s privilege, a wife’s right and a child’s claim. The scheme of life
insurance provides an assurance that if such an event happens, the person or his dependents
would get financial assistance to bear the loss.

It has been aptly said that life insurance offers the safest and surest means of establishing a
socialistic pattern, perhaps not without a lot of sweat but certainly without blood and tears. It
stabilizes the economic security of the policy holder and at the same time contributes its
might to promotion of industry by providing the necessary capital and supports various social
security measures.

Life Insurance is the most popular form of Insurance as it transfers the financial risks
associated with your death to an insurance company. General Insurance like fire, marine,
property, vehicle etc. transfer the risk associated with your property to an insurance company
so that you don’t have to pay out of pocket for any property damage covered under the terms
of the insurance policy. The central point of difference between the two is that life insurance
is a non-indemnity policy and the event insured is certain.

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 RESEARCH METHODOLOGY

The researcher has adopted doctrinal method of legal research. The sources of data are books,
articles, blogs, websites, legal databases, online journals, acts, etc.

OBJECTIVES
1. What is life insurance?
2. Whether suicide is covered under life insurance?

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 MEANING AND DEFINITION

To understand life insurance we have to first understand the scheme of insurance. Insurance
is a co-operative device to spread the loss caused by a particular risk over a number of
persons who are exposed to it and who agree to insure themselves against the risk.1 Under the
plan of insurance, a large number of people associate themselves to share different types of
risks attached to human life and property. The aim of all types of insurance is to make
provision against such risks. In other words, it is a provision which a prudent man makes
against inevitable contingencies, loss or misfortune.2 In this way, life insurance is a social
device to share the risk of loss of life.

In simple words, it means an agreement in which one party agrees to pay a given sum of
money upon the happening of a particular event contingent upon duration of human life in
exchange of the payment of a consideration. The person who guarantees the payment is
called Insurer, the amount given is called Policy Amount, the person on whose life the
payment is guaranteed is called Insured or Assured. The particular event on which the
payment is guaranteed to be given may be Death or Life. The consideration is called the
Premium. The document evidencing the contract is called Policy.

There is no statutory definition of life insurance, but it may be defined as a contract in which
the insurer, in consideration of a certain premium, either in lump sum or in form of any other
periodical payments, in return agrees to pay to the assured, or to the person for whose benefit
the policy is taken, a stated sum of money on the happening of a particular event contingent
on the duration of human life.

Here are a few definitions of life insurance which need to be considered:-

1. “Life insurance contract is a contract whereby a person (insurer) agrees for a

consideration (that is payment of a sum of money) or a periodical payment, called the

1
M. N. Mishra, “Law of Insurance”, Eighth Edition, (2010), p.1
2
Harish M. Chandrana, “Insurance: Principles and Performance”, (2009), p.1

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 premium to pay to another (insured or his estates) a stated sum of money on
happening of an event dependent on human life.”3

2. “Life insurance is a contract to pay a certain sum of money on the death of a person
in consideration of the due payment of a certain annuity for his life calculated
according to the probable duration of life.”4

3. “Life insurance is a contract 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
payments by the other.”5

The best explanation of the definition and nature of life insurance contract undoubtedly
occurs in the case titled Dalby v. India and London Life Assurance Company. The basic fact
about life insurance recognized in this case is that a contract of life insurance is not a contact
of indemnity. One of the effects of life insurance not being a contract of indemnity is that on
happening of the event insured against the insurer should pay the agreed amount irrespective
of whether the assured suffers any loss or not.6

Life insurance is, therefore, in the nature of a contingency insurance. It does not provide an
indemnity but only provides for a payment on a contingent event. Moreover, the sum is not
measured in terms of a loss; the policy states the amount payable. And the sum undertaken to
be paid becomes payable irrespective of the value of life or limb lost.

The Supreme Court explained this concept in a case 7 in which the subject matter of the
contract was insurance on the life of the assessee. The contract on behalf of the assessee was
entered into between his father and LIC as the assessee was then a minor. The contract of
insurance provided that the assessee was not entitled to the policy till he adopted the contract
on the date of his attaining majority. The apex court held that “reading the contract as a whole
it appears in substance to be a contract of life insurance with regards to the life of assessee.

3
Federation of Insurance Institute
4
Dalby v. India and London Life Assurance Company (1854) 15 CB 365:139 AII ER465
5
Joseph v. Law Integrity Insurance Company (1912) 82 LJ187
6
Avtar Singh, “Law of Insurance”, (2004), p.41
7
Chandulal Harjivandas v. CIT, AIR 1967 SC 816

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The important point to notice is that if the assessee adopts the policy upon attaining majority
the corporation becomes liable to pay the sum assured to the assessee on the stipulated date of
majority, if the assessee was alive. The LIC was also liable to pay the amount assured if the
assessee was to die before the stipulated date of majority but on or after the deferred date.

The insurance on the life of the assessee was the main intention of the contract and the other
clauses relied are merely ancillary to the main purpose. Life insurance in a broader sense
comprises any contract in which one party agrees to pay a given sum upon happening of a
particular event contingent upon the duration of human life, in consideration of the immediate
payment of a smaller sum or certain equivalent periodical payments by another party.”

INSURABLE INTEREST AND LIFE INSURANCE

Insurable interest20 is the bedrock of all types of insurance contracts. As a general rule, all
the insurance contracts are wagering contracts, as they deal with an uncertain event but the
presence of insurable interest transforms these insurance contracts into valid subsisting
enforceable and binding contracts. Thus insurable interest is a basic requirement of any
contract of insurance unless it can be, and is lawfully waived.

It simply means that the party to the insurance contract who is the insured or policyholder
must have a particular relationship with the subject-matter of insurance whether that is a life
or property or a liability to which he might be exposed. The absence of the required
relationship will render the contract illegal, void or simply unenforceable depending on the
type of insurance. The difference between life and other insurances is very crucial as far as
law regarding insurable interest is concerned. Every contract of insurance requires an
insurable interest to support it; otherwise, it is invalid.8 In certain kinds of insurance e.g.
liability insurance and fidelity or solvency insurance, the very nature of the insurance implies
the existence of an insurable interest. Whilst other kinds e.g. personal accident insurance and
burglary or livestock insurance are in practice effected by the assured for the most part in
respect of one’s own person or property.

8
Casford Union v. Poor Law and Local Government Officers Mutual Guarantee Association Ltd (1910) 103 LT
463

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Occasionally, however, the assured may, for his own benefit, effect an insurance upon the
person or property of another, and then the question of insurable interest becomes important.
For example, a personal accident policy may be affected by the assured against the loss which
he may suffer by reason of an accident of a third person.

Without insurable interest, the 'life' of the insured itself would be in danger and if that aspect
is not checked, the very purpose of life insurance business would be frustrated. The insurable
interest alone gives rise to enforceable legal interest and at the same time, also offers a very
fertile ground for insurers to refuse and dispute the claims so that they can retain their green
pastures of resources intact.

It is an undeniable truth that insurable interest is sine qua non of a contract of life insurance.
In order to affect a life insurance contract, it is necessary that the person who is a party to the
contract should have an insurable interest in the life of the person, for whom the policy is
being bought. In Warnock v. Davis9 it was clearly laid down that in all life insurance there
must be a reasonable ground, founded on the reasonable relations of the parties to each other,
either pecuniary or of blood or affinity, to expect some benefit or advantage from the
continuance of the life of the assured or otherwise the contract is a mere wager, by which the
party taking the policy is directly interested in the early death of the assured. Thus, it is a tool
to avoid moral hazards.

Moreover, if insurance is allowed without insurable interest, insurance could become

insecurity. This aspect and significance of insurable interest was effectively demonstrated in
the case of Liberty National Life Insurance Company v. Weldon10, wherein a nurse took three
insurance policies on the life of her two year old niece without the knowledge of her parents
before administering soft drink mixed with arsenic, killing the insured child within a few
hours. The nurse was prosecuted for murder. In such cases a restriction in form of insurable
interest will counter this murder inducement. Therefore, it is a well settled principle of law
that for the validity of an insurance contract the existence of an insurable interest is a
mandatory precondition.

9
104 US 775; 779 (1881)
10
(1957) Alabama 100 S.C

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Earlier, insurable interest was not essential in life insurance. A contract of life insurance was
simply enforceable at common law despite the absence of any relationship between the
insured and the life insured. The reason for this was that wagers in general were legally
enforceable and thus courts had no option but to enforce wagers in the form of life insurance
contracts.

INSURABLE INTEREST AND LIFE POLICIES

Insurable interest is the key element in the structure of a life insurance policy. It is
fundamental to the policy’s very existence. If there is no insurable interest there is no life
insurance policy.11 However, it is always difficult to define with precision what constitutes
insurable interest in life policies; but one thing is settled, that for validity of a contract of life
insurance, there must be an insurable interest.

The basic principle of the insurable interest in life insurance is the understanding that the
beneficiary of the policy value is interested in the continuance of the life insured far more
than the money from the policy.

In life policies, the following persons have been recognized as having insurable interest and
they may conveniently be considered under two main headings, namely:
(a) Blood Relationships.
(b) Contractual Relationship

11
http://www.pruadviser.co.uk/content/support/technical-centre/insurable-interest/

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 CONTRACT OF LIFE INSURANCE

A contract of insurance is a contract either to indemnify a person against a loss which may
arise on the happening of an event or to pay a sum of money on the happening of some or any
event for an agreed consideration. Under such a contract one party agrees to take the risk of
another person’s life, property or liability in consideration of certain comparatively small
periodic payments.

1. Nature of Life Insurance Contract

The nature of contract of life insurance may be summarized under the following
heads:
(a) Unilateral Contract
It is that type of contract where only one party to the contract makes legally
enforceable promise. Here it is the insurer who makes an enforceable promise. The
insurer can repudiate the contract of payment of full policy, but he cannot compel the
insured to pay the subsequent premiums. On the other hand, if the insured continues
to pay the premium, the insurer has to accept them and continue the contract.

(b) Contract of Utmost Good Faith

An insurance contract is a contract of utmost good faith and therefore, the contracting
parties are placed under a special duty towards each other, not merely to refrain from
active misrepresentation but to make full disclosure of all material facts within their
knowledge. It has been said that ‘there is no class of documents to which the strictest
good faith is more rightly required in courts of law than policies of insurance’.

(c) Conditional Contract

Life insurance is subject to the conditions and privilege provided on the back of the
policy. The conditions put the obligation on a party to fulfill certain conditions before
the proof of death or of disability are the parts of the contract. The conditions whether
precedent or subsequent of the legal rights must be fulfilled in order to complete the
contract.

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(d) Aleatory Contract
In such a kind of contract, no mutual exchange of equal monetary value is done. It is
the happening of the contingency on which the payment is made. If death occurs only
after payment of a few premiums, full policy amount is paid.

(e) Contract of Adhesion

In such a contract, the terms of the contract are not arrived at by mutual negotiations.
Similarly, in a life insurance contract, the contract is decided upon by the insurer only.
The party on the other side has to choose between the two options, i.e. either to accept
or reject the policy.

(f) Contract of Certain Amount

Life insurance contract does not provide an indemnity. It is in the nature of a
contingency contract by providing for the payment of the agreed amount on the
happening of the event.

(g) Standard Form of Contract

In the life insurance, all the essentials of a general contract as provided by the Indian
Contract Act, 1872, for a valid contract are present.

2. Formation of Life Insurance Contract

Like any other contract, a contract of life insurance must satisfy the essentials of a
valid contract. All the agreements are contracts if they are made by the free consent
of the parties competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void.

a) Offer and Acceptance

The intimation of the proposer's intention to buy insurance is the 'offer', while the
insurer's willingness to undertake the risk, is the acceptance. The insurer may also

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 propose to make the contract. From whichever side the offer may be, the main fact is
acceptance.

b) Consideration
The law of life insurance also requires a lawful consideration for its validity as it is
essential to a legal contract. Consideration is the price for which the promise of the
insurer is purchased. The payment of first premium is the consideration for the insurer
and the insurer’s promise to indemnify the assured from the stipulated risk in the
policy is the consideration to the assured.

c) Competence of Parties
The parties must be competent to enter into a contract, the parties must be of the age
of majority, of sound mind and not disqualified from contracting by any law to which
any of them is subject. Regarding the insurance contracts only those insurers can grant
insurance policies who have been issued license under the Insurance Regulatory and
Development Authority.

d) Legality of Object
A contract will be invalid if the object is illegal or against public policy. The object of
life insurance contract will be legal if it is made for one's own protection or for the
protection of the family against financial losses. In brief, the person desiring policy
must have insurable interest in the life proposed for insurance. The object of an
agreement is lawful unless: (i) it is forbidden by law, or (ii) it is of such a nature,
that if permitted would defeat the provisions of any law, or (iii) it is fraudulent (iv)
it involves injury to person or property of another (v) the court regards it immoral or
opposed to public policy.

e) Free Consent of Parties

When parties to a contract agree on the terms and conditions of the contract in the
same sense and spirit, they are said to have free consent. The consent is said to be
free when it is not caused by coercion, or undue influence or fraud or
misrepresentation or mistake.

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 In a contract of insurance the insurer and the insured must be in genuine agreement as
to the subject matter of insurance, that is, life to be insured, sum assured and term of
the insurance and every other particular relating to the contract. When a person signs
a proposal for insurance, he gives his free consent to the contract. The proposer
should understand the contents of proposal in the same sense and make a written
declaration on the proposal. He is responsible for the proposal made by him.

3. Performance of Life Insurance Contract

The performance of insurance contract has been discussed under following headings:-
(a) Preparation of Policy
(b) Conditions of Policy

(a) Preparation of Policy

The policy is prepared after formation of the contract. Preparation of policy involves
various stages which are of prospectus, filling up of proposal form, construction of
policies and alteration in policies. It includes-
 Prospectus
 Proposal form
 Construction of policies
 Alteration in policies

(b) Condition of policy

The terms and conditions of the policies can be altered during its currency by the
mutual consent of the parties. Revival of a policy which has lapsed for non-payment
of premium is also an instance of alteration by mutual agreement.
 Proof of age
 Days of grace
 Premium notice
 Payment of premium
 Return of premium
 Policy loans

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 4. Discharge of Life Insurance Contract
The insurance contract is made between the two parties–the insurer and the insured.
The contract can be discharged in the following ways:
(a) By Agreement
(b) By Impossibility of Performance
(c) By Breach
(d) By Performance

THE SUICIDE CLAUSE

A life insurance company won't pay death benefits if the policyholder commits suicide within
a specific period of time after their policy takes effect. In most states, that period is two years.

However, after those two years are up, the suicide clause no longer applies. If the
policyholder commits suicide after the clause has expired, their life insurance claim typically
can't be contested. Their beneficiaries will likely receive the full payout.

The suicide clause deals strictly with what insurers might call "intentional self-destruction" or
"death by one's own hand." If a policyholder commits suicide within the time period dictated
by the exclusion, the insurer will look for proof that their death was intentional. If it was,
beneficiaries won't receive a payout.

Insurance policies include a suicide provision to protect insurers. Without the exclusion, a
policyholder could buy a policy with the intention of committing suicide. As soon as their
policy took effect, they could take their own life, and their beneficiaries would receive the
policy's full payout.

That might seem like an outrageous scenario, that someone could be so desperate to ease their
family's financial struggles that they'd actually take their own life. But it's happened. Loss of
a job, rising debt, a death in the family -- these events might be so devastating, the promise of

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a life insurance benefit could be the deciding factor for committing suicide. The suicide
clause tries to curb that incentive.12

12
https://soumyalaha.blogspot.in/2017/04/insurance-law-in-india-notes.html

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 Conclusion

Life insurance is a financial cover for a contingency linked with human life, like death,
disability, accident, retirement etc. It provides a definite amount of money in case the life
insured dies during the term of the policy or becomes disabled on account of an accident.

When a human life is lost or a person is disabled permanently or temporarily there is loss of
income to the household. So everyone who has a family to support and is an income earner
needs life insurance. The idea underlying the concept of life insurance is that ‘when your
family members or dependants depend on you financially: you need to secure their future’.
Having your life insured is akin to promising your family that they won’t ever face a financial
problem, whether you are there or not because your responsibilities do not end with you. It
means buying life insurance is like buying peace of mind for lifetime.

Thus, the significance of having a life insurance lies in the “peace of mind” that it brings
along. Apart from this it promotes savings, assist the family in odd situations, gives tax
benefits and facilitates easy loans thereby securing the future of insured. But in order to have
a financially secured future, you have to pay the insurer a “life insurance premium”, which is
either a regular annual payment or onetime payment as the case may be.

At present, life insurance enjoys maximum scope because the life is the most important
property of the society or an individual. Each and every person requires the insurance. This
insurance provides protection to the family at the premature death or gives adequate amount
at the old age when earning capacities are reduced. The insurance is not only a protection but
is a sort of investment as a certain sum is returnable to the insured at the death or at the expiry
of a period.

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 Webliography

 http://www.academia.edu/7325197/LECTURE_ON_INSURANCE_LAW
 https://www.slideshare.net/guest5f7f96/life-insurance
 https://soumyalaha.blogspot.in/2017/04/insurance-law-in-india-notes.html
 https://issuu.com/sanjaykumarguptaa/docs/project-report-on-lic


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