II. Insurable interest: Insurable interest is the pecuniary interest.

The insurer must

have an insurance interest in the life to the insurer for a valid contract.

Insurable interest in the life insurance may be divided in the following manners:

Insurable interest

Owns life Other’s life

Proof is not
required Proof is required

Business relations Family

relation
 Brief explanation

Insurable interest in owns life:

Any individual should insurable interest in his owns life.
The insurable interest in own life is unlimited because; the loss to the insured or his
dependents cannot be measured in terms of the money.
Therefore, no limit can be placed to the amount of insurance that one may take on
one’s own life.

Insurable interest in others life:

Life insurance can be affected on the lives of third parties provided the purpose has
insurable interest in the third party.

Proof not required:

Proof is not required in the following cases:
 Wife has insurable interest in the life of her husband
 Husband has insurable interest in the life of his wife

Proof is required:
Insurable interest has to be proved in the following cases:
Business relationships:-
- A creditor has insurable interest in the life of his debtor.
- A trustee has insurable interest in respect of the interest of which he is
trustee.
- A burley has insurable interest in the life of his principal.
- A partner has insurable interest in life of his each partner.
- An employee has insurable interest in the life of the key man.
- An insurer has insurable interest in the life of unsure.

Family relationship:
The insurable interest may arise due to family relationship if pecuniary interest
exists between the policy holders & life assured because mere relation or ties of
blood and of affections does not constitute insurable interest.
The purposes must have reasonable expectations of financial benefit from the
continuance of the life of the person to be measured or of financial loss from his
death.

# General rules of insurable interest in life insurance:

 Time of insurable interest: Insurable interest must exist at the time of
proposal. Policy without insurable interest will be wager.
 Services: Except the services of wife, services of other relatives will not form
insurable interest. Then must be financial relationship between the proposer
and life insurance.
  Insurable interest must be valuable: the value or extent of the insurable
interest must be clef ermined to avoid wager contract of the additional
insurance. Insurance is limited up to the amount of insurable interest.

 Insurable interest should be valid: insurable interest should not be against

public policy. It should recognized by law.

 The legal responsibility may be basis of insurable interest: Since the person
will suffer financially up to the extent of responsibility, the person has
insurable to that extent.

 Insurable interest must be definite: The insurable interest must be present

definitely at the time of proposal.

 Legal consequence: The insurable interest must be there to form legal and
valid insurable contract.

III. Utmost good faith: The life insurance requires that the principles of utmost good
faith should be preserved between the parties. The parties, proposer (insured) and
insurer must be of the same mind at the time of attract because only then the risk
may correctly ascertained. They must make full and true disclosure of the facts
material to the risk.
The undernoted facts should be disclosed in case of utmost good faith:
 Material facts: Age, insure, occupation, health, habits, residence, family
history & plan of insurance.
 Duty of both parties: Both the proposer & the insurer are responsible to
disclose all material facts. Because these are going to influence the decision
of the both parties, whether apply or not to apply for insurance.
 Full and true disclosure: Utmost good faith says that these should be full &
true disclosure of all the material facts.
 Extent of the duty: The duty of disclosure finishes at the moment when the
proposal form has been fully & correctly fulfilled.
 Legal consequence: In the absence of utmost good faith, the contract will be
voidable at the option of the person who suffered loss due to non disclosure.
 Indisputability of policy: There should not be any Indisputability in the life
insurance policy at the time of preparation of agreement. No policy of life
insurance affair expires of two years from this date on which it was effected
will be raised as incorrect/false.
#Facts are not required to be disclosed:
• Circumstances which are diminishing the risk.
 • Facts which are known as reasonable should be known to the insurer in his
ordinary course of business.
• Facts which the insurer should inter from the information given.
• Facts which are waived by the insurer.
• Facts of public knowledge.

IV. Warranties:
• Representation: In life insurance those representations which are embodied
in the policy & expressly & impliedly forming part of the basis of the contract
are called warranties.
 The material representations are the basis of insurance under material facts.
 If the proposer’s representation is false or untrue, the contract may be
voidable at the option of the insurer.

• Warranties: Warranties are the basis of the contract between the proposer
and insurer.
If any statement is untrue the contract shall be null & void.
• Informative warranties: The proposer is expected to disclose all the material
all the material facts to the best of his knowledge & belief.
• Promissory warranties: The proposer promises that he will not take any
hazardous occupation; he will inform the insurer if he will take the hazardous
occupation.
• Breach of warranty: If there is breach of warranty the insurer is not bound to
perform his part of the contract unless he chooses to ignore the breach.

V. Proximate cause:
The efficient or effective cause which causes the loss is called proximate cause.
If the cause of loss (peril) insured, the insurer will pay, otherwise the insurer will not
compensate.

#in the following cases, the proximate causes are observed in the life insurance:
- War-risk
- Suicide &
- Accident benefit

VI. Assignment: The policy in life insurance can be assigned freely for a legal
consideration or love and affection. The assignment should be complete and
effectual only on the execution of such endorsement either on the policy itself or by
a separate deed.

VII. Nomination:
The holder of a policy of life insurance on his own life may either at the time of
affecting policy or at any subsequent time before the policy matures, nominates the
person or persons to whom the money secured by the policy shall be paid of his
death.

VIII. Return of premium:

Ordinarily, the premium once paid cannot be returned. However, for reason of
equity the premium paid are returnable.

IX. Other features:

• Life insurance have the following additional features:
• Aleatory contract: It means contract depends on chance. For example on the
chance of death higher amount is payable.
• Unilateral contract: Life insurance contract is unilateral contract. The
proposer had already performed his duty of payment of premiusses.
• Conditional contract: Life insurance contract is conditioned contract because
the insurer shall pay the assured sum only when the contract is continuing by
payment of premium.
• Contract of adhesion: Contract of adhesion meant that the terms of the
contract are not arrived by mutual negotiations between the parties as in the
case of ordinary contracts.
• Indemnity contract is not applied: In life insurance the indemnity contract not
applicable because the value of loss at death cannot be ascertained.

05. Classification and meaning of life insurance policy:

B. Life insurance policies- classification & meaning:
The life insurance policies can be divided on the basis of-
(A) Duration of policy
(B) Method of premium payments
(C) Participation in project
(D)Number of lives covered
(E) Method of payment of claim amounts and
(F) Non-Conventional policies

Sub-serial no- A. Policies according to duration:

(i) Whole life policies: These are issued for life. It means that policy amount will
be paid at the death of the life assured.
(ii) Limited payment whole life policies: The payment of premium is limited to
certain period although the amount secured under this plan.
(iii)Convertible whole-life policy: This is a whole-life policy which gives its holder
an option to get it at the end of five years, into an endowment policy.
(iv) Term insurance policy: Term insurance is a period of terms ranging from 3
months to 7 years.
(v) Straight-term (temporary) insurance: The corporation issues term-insurance
for two years, which is called as two year temporary assurance policy.
(vi) Renewable-term policy: This policy are renewable at the expiry of term
for an additional period without medical examination, but the premium
note will be altered according to the age attained at the time of renewal.
(vii) Convertible term policy: Under this policy, option to convert it into whole
life or endowment policy is available.
(viii) Pure endowment policy: The sum assured is payable on the life assured
surviving the endowment term. In the event of his death within the term
(endowment), premiums may be refundable or not.
(ix) Ordinary endowment policy: This is the policy which represents the life
insurance in true sense. It provides an ideal combination of both the
family protection & the investment.
(x) Joint life endowment policy: This policy covers more than one life under a
single policy. Under this plan, the sum assured is payable on the expiry of
the term or on the death of one of the assured lives during the
endowment period.
(xi) Double endowment policy: under this policy if the life assured dies during
the endowment period, the basic sum assured is payable if he survives to
the end of the term, double of the sum assured is paid.
(xii) Fixed term (marriage) endowment policy: Under this plan the sum assured
is payable only at the end of a stipulated period, but the premium ceases
if death of the policy holder occurs earlier.
(xiii) Triple benefit policy: This policy is a combination of a whole life limited
payment and a pure endowment (without return of premium) with
guaranteed annual bonus payable on death during this endowment term.
(xiv) Anticipated endowment policy: This policy is similar to endowment
assurance except that a part of the sun assured is paid at certain interval
before death within maturity of the policy and in balance of the sum
assured is payable at maturity.
(xv) The money back policy with profit: The money back policy is useful for
those who want to provide additional insurance benefits at periodical
intervals.
(xvi) Progressive protection policy with profits: this policy is very useful for
those who want to provide additional insurance benefits for additional
responsibilities.
(xvii) Anticipated whole life policy with profits: This policy provides two distinct
types of benefits in one policy- the benefit of whole life limited payment
policy & anticipated payments at five yearly intervals.
 (xviii) New jana raksha policy: This policy has been designed taking into account
the problem of non-payment of premiums in time. A special facility when
by the policy continues to provide full cover for three years on payment of
an initial extra single premium has been incorporated under this policy.
(xix) Children’s deferred endowment assurance: A parent or guardian or new
relative of a child wishes to take an insurance policy on the life of the child
under which premium is paid by the proposer during the first few years 7
by the life assured (i.e by the children) thereafter.
(xx) Jeevan saathi: Jeevan saathi is the new joint life plan with a difference.
The plan is designed to give a total protection to families particularly for
the working couple.
(xxi) Married women’s property act policy: A married woman can effect a policy
on her own life, wife and or children shall be claimed to be a trust for their
benefits & shall not, so long as any object of the trust remains, be subject
to the central of the husband or his creditor or form part of his estate.
(xxii) Supervisor ship, reversionary or contingent assurance: There are two
persons according to this policy, first a named insured and another named
person. The sum assured is payable if the life assured dies before another
specified person (named person) or counter life.

B. Policies according to methods of premium payments:

(i) Single premium policy: In this policy. The whole premium is paid at the
beginning of the policy.
(ii) Level premium policy: under this policy regular and equal premiums are
paid at a definite interval.

C. Policies according to participation in profits:

(i) Without project policies or non participating policies: The holders of without
profit policies are not entitled to share the profits of the insurer. These policy
holders get only the sum assured and no bonus is given to them.
(ii) With profit policies or participating policies: The holders of the with profits
policies are entitled to those the profit of the insurer since the policy-holders
can share the profit and not the loss, they can be treated as co-owner of the
insurance business.

D. Policies according to the number of persons insured:

(i) Single life policies: Under single life policy, only one individual is insured. The
policy should not be issued in one’s own life; it may be in others life, but the
fact is that this policy insures only one life.
(ii) Multiple life policy: In this policy more than one life is insured. It may be (a)
joint life policy & (b) last survivor policy. Joint life policy covers two or more
 lives and the policy amount is payable on the first death. On the other hand,
last survivorship policy amount is payable at the last death.

E. Policies according to the method of payment of policy amount:

(i) Lump sum policy: When the sum assured is paid in lump sum at the events
insured against.
(ii) Installment of annuity policies: Under this policy the policy amount is payable
by installments. It is beneficial to those whose earning capacities are reduced
to minimum in old age.

F. Non-conventional policies:
The life insurance corporation (LIC) of India has introduced several non-conventional
policies to meet the requirements of the population. The conventional policies have
the main attributes of protection at early death or living too ong. Majority of the
population is interested mainly in investments. The LIC has designed several new
policies to meet these requirements. Some new policies are as follows:
 Policies under LIC Mutual Fund
 Jeevan Akshay
 Jeevan dhard
 Jeevan kishore &
 Jeevan chaya.