Q1.

Life Insurance
Answer
Introduction: Life insurance is a corporate effort to provide security against economic hazards
of man. It is a contract between the insurer and the insured to pay a stated sum of money, for
a consideration in the form of premium, on happening of any future event on the life of the
assured.
Meaning:    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.
Definition:
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.
 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.
Characteristics of life insurance
 It is a contract between the insurer and insured.
 Insurance of human hazards is covered by life insurance policy.
 It is a promise to pay the money insured in consideration to a premium.
 The insurance premium is sometimes paid at a lump sum together or periodically.
 A default in remitting the premium may cause discharge of the insurance contract and
the insurer shall be relieved from his liability.
 The money insured is paid by the insurer to the insured or assignee on happening of
the event specified in the policy. The proposal for affecting an insurance policy is
executed in the prescribed form.
 The policy is signed by the insurer only
Types of life insurance policies
Life insurance policies can be broadly classified into traditional life insurance policies and
non-traditional life insurance policies. Except for ULIPs, most of the following types of life
covers come under traditional policies:
 Term insurance: Since there is no maturity benefit associated with term insurance, it is
considered to be the purest form of life insurance coverage. This policy pays lump sum
benefit to the insured’s dependents upon his/her untimely death during the policy
term. If the insured outlives the policy term, the coverage will terminate without any
maturity benefits.
  Unit-linked insurance plans (ULIPs): This is a non-traditional life insurance cover
offered by insurers. As the name implies, this policy is linked to the market and the
maturity benefits are based on the policy’s earnings in the market. Customers are free
to choose the type of funds based on their risk appetite.
 Endowment plans: These are life insurance policies that have a savings aspect along
with life insurance protection. One of the notable aspects of endowment policies is
that they provide guaranteed returns, unlike ULIPs. There are different types of
endowment covers available in the market. Most endowment policies provide bonus
payments along with the maturity benefit.
 Whole-life insurance: This is a traditional plan wherein the life insurance coverage is
offered through the entire life (maximum of 100 years) of the insured person.
Following the death of the insured, his/her dependents will get the benefit amount.
The premium payment period is fixed at a specific number of years for this policy.
 Child insurance plan: This policy is mainly designed to secure the future
educational/marriage needs of a child. A parent can take this policy to protect his/her
child’s future. If the parent dies during the policy term, the future premiums are
waived and the child will get the maturity benefit at the end of the policy term.
 Retirement plans: These plans are famous among career-oriented individuals. It allows
people to build a corpus for their retirement and secure their post-retirement needs.
People also invest in pension plans to get regular income following their retirement.

Nature and Scope of Life Insurance

1. Unilateral Contract.
 only one party to the contract makes legally enforceable
 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.
2.Conditional Contract.
 Life insurance is subject to the conditions and privilege provided on the back of the
policy.
 The conditions whether precedent or subsequent of the legal rights must be fulfilled in
order to complete the contract.
3. Aleatory Contract.
In such a kind of contract, no mutual exchange of equal monetary vi
 It is the happening of the contingency on which the payment is made.
 The happening is a matter of chance which may occur or not.
 If death occurs only after payment of a few premiums, full policy amount is paid.
4. 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.
5. Contract of Cartain 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.
6 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.

Scope of life Insurance

1: Secure your family’s goals: As the primary earner of the family, plenty of responsibilities lie
on your shoulders. If something unfortunate happens to you, the death benefit received by
your family will help them sustain a comfortable lifestyle.
2.Protect the children’s futureYou work hard to provide the best of everything for your
children. A life insurance plan allows you to secure the dreams and aspirations of your child
even if you are no longer around. Most child insurance plans come with a premium waiver
benefit.
3.Takes care of your liabilities: The various loans and liabilities that you take to make your life
comfortable may become burdensome for your family in your absence.
4.Gear up for the future
With an annuity-based plan or other savings schemes, you can enjoy the dual benefits of
insurance as well as wealth creation. Thus, insurance could be easily combined with the
family’s financial plan.
5.Tax benefits: Yet another major benefit that you can avail of is tax saving. You can get tax
benefits of up to INR 1.5 lakhs on the premium that you pay towards the insurance policy as
per Section 80C of the Income Tax Act. Also, the death/ maturity benefits received by your
nominee would be tax-free under Section 10(10D).
Conclusion: Expect the unexpected and plan for unforeseen events! Life insurance can be
their much-needed helping hand in the absence of the bread earner of the family. So, get
yourself insured today if you haven't done so far.

Q2. Formation of life Insurance contract

Answer
 Life Insurance is Legal Contract and its formation is subject to fulfillment of the requisites of a
valid contract under Indian Contract Act 1872. Since Insurance is a contract section 2(h) and
Section 10 of the Indian Contract Act 1872 are applicable.
1. Parties to a Contract(Offer and Acceptance):  To constitute a contract, there must be
an offer/ proposal and acceptance. One person signifies to another his willingness to
do or to abstain from doing anything, with a view to obtaining the assent of that other
to such act or abstinence, he is said to make a proposal. When a person to whom the
proposal is made, signifies his assent thereto the proposal is said to be accepted. A
proposal, when accepted, becomes a promise. The person making the proposal is
called the “promisor”, and the person accepting the proposal is called
 “promisee”.Therefore in every contract, there must be two or more parties/persons at
least two parties/persons. For the Formation of Life Insurance Contract, there must be
two Parties.
2. Agreement: Agreement between the parties is an essential element for the formation
of Valid Contract. Like other all Contracts, a Contract of Life Insurance there must be
Agreement between the party. The people who wish to get ensured intend to buy the
policy make the 'offer' and the other party who is ready to assume the risk stated, as
the acceptance. In case of life insurance offer is called the proposal. 
3. Competency of the parties or capacity to contract -  According to Section 11 of the
Indian Contract Act, 1872 To constitute a valid contract, contracting parties must be
competent. Every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is sound mind and is not
disqualified from contracting by any law to which he is subject.
4.  Free consent - Section 13 and Section 14 of the Indian Contract Act, 1872 defines
'Consent' and 'Free Consent' respectively. According to Section 10 of the Indian
Contract Act, 1872, to constitute a valid contract, parties should enter into the
contract with their free Consent. Consent is said to be free when it is not obtained by
coercion, or undue influence or fraud or misrepresentation or mistake.
5. Legal Consideration - Consideration is necessary for the formation of a contract. It
means "something return". It is the price paid for the contract. It must be Lawful. A
contract without consideration is void.
6. Lawful object -  To constitute a valid contract the object of the contract must be
lawful. It must not be against public policy.  According to Section 23 of the Indian
Contract Act 1872, the object is unlawful which is - a) Forbidden by law
b) Opposed to public policy c) Immoral d) Which defeats the provision by any Law

Case Law:
 In Kulta Ammal v. Oriental Government Security Life Assurance Co. Ltd,. it was held
that in case of an illiterate person it is necessary to prove the fact that he had
knowledge of what was stated in the proposal
 New India Assurance Limited Vs Kesavan Ramamurthy: In this case, court held that
nothing is found to be unlawful in insurance policy if it provides that no compensation
would be paid if an unlicensed person or a person holding learning license drive be
insured vehicle.

Q2. Circumstances Affects the risk of life insurance

Answer
Objective: The factors which may affect the risk are usually those factors which are affecting
the mortality; they are also called factors affecting longevity of a person.
Learning Outcomes: The mortality is not the only risk but the capacity and willingness of a
person also influence the insurance decision.

Introduction:
In life insurance, the factors which may affect the risk are usually those factors which are
affecting the mortality; they are also called factors affecting longevity of a person. These
factors are discussed in following paragraphs:
1. Age: The age of the life to be assured is the most important factor to affect mortality.
Except for a few years of the childhood, the premium is determined at every year of
the completion of age. The age proof is very essential for calculating premium rate. So,
unless age is proved payment of claim is not made if the age was not admitted at the
time of proposal. The maximum age limit is fixed to avoid adverse selection. At
advance age, the need for insurance is a doubtful proposition, i.e., the chances of
moral hazard are higher. The third reason for fixing maximum limit is the medical
examination will disapprove most of the proposal at that stage. Mortality is certainly
increased at that age. The minimum age limit is meant to avoid risk of infant
mortality.
2. Build : Build refers to physique of the proposed life and includes height, weight, the
distribution of weight and chest expansion. There are standards of weight according
to maximum weight reveal the indication of certain hidden diseases. Overweight is
dangerous in advanced age and underweight is similarly not desirable at younger age,
say, below 35 years. The corporation, for example, has fixed the minimum weight, and
maximum weight at a specified height
3. Physical Condition : The physical condition of the age life proposed has a direct
bearing on the mortality of the life. Insurers are, therefore, very particular about the
conditions of an applicants' sight, hearing, heart, arteries, lungs, tonsils, teeth,
kidneys, nervous system, etc. The experts in the field can assess the longevity or
mortality of a person due to impairment of certain organs.
4. Personal History : The personal history of the life proposed would reveal the
possibility of death to him. The history may be connected with the (i) health record,
(ii) past habit, (iii) previous occupation, (iv) insurance history.
a)Health Record: The past health record is the most important factor under personal
history because it affects the longevity or mortality of a person to a greater extent. It
includes any operations of the life proposed. The medical examination may reveal
these facts.
b) Past Habits: The insurers want to know the past habit the life proposed, for drugs or
alcohol because the cure may be only temporary. The past history is usually expected
to be repeated. Therefore, past history is very cautiously examined.
c) History of Occupation: If the proponent was employed in hazardous or unhealthy
occupation, there is a possibility that he may still retain ill-effects there from or may
revert to such occupation.
 d) Insurance History: The previous amount of insurance may disclose the degree of
risk of the applicant. If he was refused insurance, it might be a suspicious factor of his
insurability.
5. Family History: Like the personal history, family history also requires information of habit,
health, occupation and insurance of other family members, particularly of the parents,
brother and sisters. The children's history of health is also required. The family history is
considered significant to know the transmission of certain, characteristics by heredity. Hearts,
lungs, build, etc., follow family.
6. Occupation: Occupation is an important factor to affect the risk. It affects the occupation in
various ways. Firstly, the nature of work may be hazardous because he may suffer an accident
at any time while at work. Secondly, the morale of the workers may go down. They may be
tempted to indulge in intoxicating or liquor or other forms of immoral living.
Thirdly, the chemical effect may be poisonous. For instance, the workers may contact poison
while engaged in match or chemical factories.
Fourthly, the dusty or unventilated house, unhealthy or insanitary environments may
deteriorate the health of the workers. Fifthly, in certain occupation, the occupational diseases
are common. Sixthly, excessive mental and nervous strain may cause financial worries, and
lastly, the lesser income may affect the health of the worker
7. Residence: The residence also affects the risk. The risk will be lesser in a good climate area
and more in a bad climate although the difference is narrowed down because of better
medical and sanitary facilities! Information about the previous residence is equally
important.
The geographical location, atmosphere, political stability, climate, construction of house,
travel, etc., are important factor which may affect the risk.
8.Present Habits : The general mode of living of the proposer affects the risk. Drunkards and
non-temperate persons cause increase in mortality. Similarly, temperate habits tend to
increase longevity of a person.
9. Morals : It has been observed that the departure from the commonly accepted standards
of ethical and moral conduct involve extra mortality. Infidelity and departure from the code
of sex behaviour are seriously regarded because these may affect the health. Unethical
conduct is considered to be another form of moral hazard. Insurance is not generally given to
bankrupt and reputed dishonest persons.
10. Race and Nationality : The mortality rate differs from race to race and nation to nation. In
India, persons of high, race or caste are expected to live longer than the scheduled castes or
tribes. Similarly, countries near to equator have more mortality. The climate and way of life
of a country affect the health conditions of the people.
11. Sex : Mortality among female sex is, generally, higher than that of male sex because the
physical hazard of maternity is present in the former case. Moreover, the ladies are physically
more handicapped. The lesser education, conservatism and non-employment of the ladies
also affect the mortality. The absences of proper examination of the ladies also count more
hazard. The chances of moral hazard are also present in the female insurance. So, unless
woman has good financial reasons for insurance, her proposal is not generally conceded.
12. Economic Status :It is essential to examine that the family and business circumstances of
the proponents are such as to justify the amount of insurance applied for. This investigation
also reveals whether the income of the applicants bears a reasonable relationship to the
amount of insurance which he proposes to carry.
The higher economic status generally provides a better field for insurance due to various
reasons. Educational, financial and professional consciousness makes the
proponent insurance minded. The chance of death is also lower in higher strata of the
society.
13. Defense Services: Though there has been much improvement in defense technology, yet
flying or gliding, etc., is still considered hazardous one. Sometimes, certain restrictive clauses
are imposed for insuring persons engaged in such services.
In some other works, extra premiums are required. In commercial flying, no occupational
extra is required. The war clause is added to avoid the occupation risk in defence, say, navy,
air force and military.
14. Plan of Insurance: Certain plans involve more responsibility to the insurer at death and so
these plans are restricted to only first class lives, Similarly, some plans have lesser risk and.
therefore, can be issued without any extra investigations. For example, the multi-purpose
policy is issued only to first class lives and the pure endowment policy can be issued to any
one irrespective of health

Q3: Persons entitled to payment under Life insurance – 

Answer:
 As we all know that Life insurance is a contract that pledges payment of an amount to the
person assured or his nominee on the happening of the event insured against. Nobody can
predict what will happen in their future life however there is always need to earn income to
support yourself and your dependents in case of any eventuality. Life insurance policy
provides financial security. The life insurance policy pays you in the wake of unfortunate
events such as death or on the inability to earn due to physical disabilities. Life insurance
policy covers the risk of contingencies is dependent on human life. For example payment of
an amount (which is called sum assured) on the death of of the Life Assured. Further, annuity
contracts (which provide for periodic payments to life as sure as long as the policyholder is
alive) are the provisions of accident benefits also from part of life insurance business.
A) Payee - In the contract of life insurance, the policyholder will not always be the payee but
it is the person whose name is entered in the benefits schedule of the policy and who
receives the benefits of payment of scheme who is also known as the payee.
B) Assured himself - In the Life insurance contract, life Assured himself in case of policy on
own life for living benefit claims ( for example critical illness, disability old age etc.) if in the
life insurance contract, life insured services to the full term, then basic sum assured is
payabletohimonly.
C)Assignee or assignment - The expression assignment literally means transfer. the insurance
act lays down the mode of assignment and transfer of life insurance policy. an assignment or
transfer may be made only on satisfaction of the following conditions -
1) An endorsement upon the policy itself or by a separate instrument;
2) the endorsement or instrument should be signed by the transferor his agent and should be
attested by at least one witness;
3) it should specifically set forth the fact of transfer or assignment.
D) Nominee: Nomination is governed by Section 39 of the Insurance Act 1938. According to
Section 39(1) of the said act the holder of a policy of life insurance on his own life may, when
effecting the policy or at any time before the policy matures for payment, nominate the
person or persons to whom the money secured by the policy shall be paid in the event of his
death. Provided that, where any nominee is a minor, it shall be lawful for the policyholder to
appoint any person in the manner laid down by the insurer, to receive the money secured by
the policy in the event of his death during the minority of the nominee.
  (2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of
the policy itself, be made by an endorsement on the policy communicated to the insurer and
registered by him in the records relating to the policy and any such nomination may at any
time before the policy matures for payment be cancelled or changed by an endorsement or a
further endorsement or a will, as the case may be, but unless notice in writing of any such
cancellation or change has been delivered to the insurer, the insurer shall not be liable for
any payment under the policy made bona fide by him to a nominee mentioned in the text of
the policy or registered in records of the insurer.
      (3) The insurer shall furnish to the policyholder a written acknowledgement of having
registered a nomination or a cancellation or change thereof, and may charge such fee as may
be specified by regulations for registering such cancellation or change.
      (4) A transfer or assignment of a policy made in accordance with section 38 shall
automatically cancel a nomination
rovided that the assignment of a policy to the insurer who bears the risk on the policy at the
time of the assignment, in consideration of a loan granted by that insurer on the security of
the policy within its surrender value, or its reassignment on repayment of the loan shall not
cancel a nomination, but shall affect the rights of the nominee only to the extent of the
insurer's interest in the policy: Provided further that the transfer or assignment of a policy,
whether wholly or in part, in consideration of a loan advanced by the transfree or assignee to
the policyholder, shall not cancel the nomination but shall affect the rights of the nominee
only to the extent of the interest of the transferee or assignee, as the case may be, in the
policy: Provided also that the nomination, which has been automatically canceled
consequent upon the transfer or assignment, the same nomination shall stand automatically
revived when the policy is reassigned by the assignee or retransferred by the transferee in
favor of the policyholder on repayment of loan other than on a security of policy to the
insurer.
        (5) Where the policy matures for payment during the lifetime of the person whose life is
insured or where the nominee or, if there are more nominees than one, all the nominees die
before the policy matures for payment, the amount secured by the policy shall be payable to
the policyholder or his heirs or legal representatives or the holder of a succession certificate,
as the case may be.
        (6) Where the nominee or if there are more nominees than one, a nominee or nominees
survive the person whose life is insured, the amount secured by the policy shall be payable to
such survivor or survivors.
         (7) Subject to the other provisions of this section, where the holder of a policy of
insurance on his own life nominates his parents, or his spouse, or his children, or his spouse
and children, or any of them, the nominee or nominees shall be beneficially entitled to the
amount payable by the insurer to him or them under sub-section (6) unless it is proved that
the holder of the policy, having regard to the nature of his title to the policy, could not have
conferred any such beneficial title on the nominee.
         (8) Subject as aforesaid, where the nominee, or if there are more nominees than one, a
nominee or nominees, to whom sub-section (7) applies, die after the person whose life is
insured but before the amount secured by the policy is paid, the amount secured by the
policy, or so much of the amount secured by the policy as represents the share of the
nominee or nominees so dying (as the case may be), shall be payable to the heirs or legal
representatives of the nominee or nominees or the holder of a succession certificate, as the
case may be, and they shall be beneficially entitled to such amount.
         (9) Nothing in sub-section (7) and (8) shall operate to destroy or impede the right of any
creditor to be paid out of the proceeds of any policy of life insurance.
        (10) The provisions of sub-sections (7) and (8) shall apply to all policies of life insurance
maturing for payment after the commencement of the Insurance Laws (Amendment) Act,
2015.
        (11) Where a policyholder dies after the maturity of the policy but the proceeds and
benefit of his policy has not been made to him because of his death, in such a case, his
nominee shall be entitled to the proceeds and benefit of his policy.[Amended by Insurance
Act 2015]
       (12) The provisions of this section shall not apply to any policy of life insurance to which
section 6 of the Married Women's Property Act, 1874, applies or has at any time applied:
Provided that where a nomination made whether before or after the commencement of the
Insurance Laws (Amendment) Act, 2015, in favour of the wife of the person who has insured
his life or of his wife and children or any of them is expressed, whether or not on the face of
the policy, as being made under this section, the said section 6 shall be deemed not to apply
or not to have applied to the policy.
E) Legal heirs - The claim is usually payable to nominee/assignee or the legal heirs as the
case may be. However, if the deceased policyholder has not nominated/assigned the policy
or if he or she has not made a suitable provision regarding the policy sums of money by
way of a will, the claim is payable to the holder of a succession certificate or some such
evidence of title from a court of law.
F) Appointee - Appointee is entitled to payment of life insurance contract.