Muhammad Ali (Ph.D.

)
Email: muhammadalipu787@gmail.com
“If a child, a spouse, a life partner, or a parent
depends on you and your income, you need life
insurance.” Suze Orman

Muhammad Ali (Ph.D.)

Tentative email: muhammadalipu787@gmail.com
 What is Life Insurance

Contract in which you pay a certain premium

periodically

Stated money amount paid upon your death

Paid to your beneficiary – person named to

receive your benefits

stabilizes the economic security of the policy

holder
 General Overview of Life
Insurance

Life is full of risks. For example: 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 business proposition resting on the combined

operation of law of mortality and interest. We all know that time of
our death is uncertain and in case of untimely death of a person his
family could be put into great financial hardship. The science of life
insurance revolves around the principle of providing some financial
relief to the loved ones of a person in case of his sudden death.
 What is Life Insurance Cont…

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
 Pay a set amount for the rest of your life
Also serves as an investment
 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.
Purpose of Life Insurance

Life insurance is a husband’s privilege, a wife’s

right and a child’s claim.

• Pay off mortgage or other debt

• Money for children when they reach certain age
 • Education or income for children, survivors
• Charitable donations
• Retirement income
• Accumulate savings
• Set up an estate plan
• Pay estate and death taxes
 Principle of Life Insurance

Estimate how long people will live

Set the price of life insurance on tables

 Higher premiums for those who will die sooner

 Types of Life Insurance Policies
Term Insurance
•Pays out only if you die during the term it covers
•May only get covered for the time you have children
Renewable Term - allows to renew after original term is up
Multiyear Level Term – Guarantees you pay the same
premium for the duration of policy
Conversion Term – Allows you to change from term to
permanent, with a higher premium
Decreasing Term – Pays less to beneficiary as time passes
 Nature of Life Insurance
Contract
The nature of contract of life insurance may be summarized
under the following heads:

(a) Unilateral Contract

(b) Contract of Utmost Good Faith
(c) Conditional Contract
(d) Aleatory Contract
(e) Contract of Adhesion
(f) Contract of Certain Amount
(g) Standard Form of Contract
 Nature of Life Insurance
Contract Cont…
(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.
 Nature of Life Insurance
Contract Cont…
(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.
 Nature of Life Insurance
Contract Cont…
(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.
 Nature of Life Insurance
Contract Cont…
(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.

For example: the insurer does not have to pay the insured until an event, such as a fire that
results in property loss. Aleatory contracts–also called aleatory insurance–are helpful
because they typically help the purchaser reduce financial risk.
 Nature of Life Insurance
Contract Cont…
(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.
For example: In an insurance contract, the company and its agent has the power to
draft the contract, while the potential policyholder only has the right of refusal; they
cannot counter the offer or create a new contract to which the insurer
can agree. Before signing an adhesion contract, it is imperative to read it over
carefully, as all the information and rules have been written by the other party.
 Nature of Life Insurance
Contract Cont…

(f) Contract of Certain Amount

Life insurance contract of certain amount 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 a standard form contract (sometimes referred to as a contract of

adhesion, a take-it-or-leave-it contract) is a contract between two parties,
where the terms and conditions of the contract are set by one of the
parties, and the other party has little or no ability to negotiate more
favorable terms and is thus placed in a "take it or leave it" position.
 Health Insurance

What is health Insurance?

• Protection from illness or injury

• Includes both medical expense insurance and
disability income insurance
• Medical expense insurance pays actual
medical costs
• Disability income insurance covers income
person lost from illness and injury
Basic Health Insurance Coverage

• Hospital Expense
 • Some or all of daily cost of room and board
 • Routine nursing, minor medical supplies, use
of other hospital facilities as well
• Surgical Expense
• Pays all or part of surgeon’s fees
 • Physician Expense
 • Meets some or all of the costs that do not
involve surgery
 • Routine visits, x-rays, lab tests
 Group Health Insurance

• Most people who have insurance are covered under

this type of plan
 • Usually employer sponsored, or by labor unions
• They cover most or all of cost
• Cost is fairly low because so many people are
insured under the same policy
 • Coordination of Benefits
 • Allows you to combine benefits from more than one
insurance plan
 Individual Health Insurance

• Buy from the company of your choice

• Have to work for a private company or state or local
govt. to be eligible
 Disability Insurance

Disability insurance is a type of insurance that will

provide income in the event a worker is unable to
perform their work and earn money due to a disability.

Types of Disability Insurance

There are two basic types of disability insurance.
Short term disability insurance policies offer a worker
a portion of their salary if they are unable to work for a
short period—typically three to six months.
Long term disability insurance offers a worker a
portion of their salary if they are unable to work for a
longer period—typically a period of over six months.
 Sources of Disability Income
• Worker’s Compensation
• Employer
• Social Security
• Private Income Insurance Programs

Worker’s Compensation
• Result of accident or illness that occurred on the job
• Benefits depend on salary and work history

Employer
• Provided through group insurance plans
• Employer pays part or all of cost
• Could be continued wages for several months or for long-
term
 Sources of Disability Income
Cont…

Social Security
• Eligible if you paid into Social Security system
• Depends on salary and number of years you’ve been working
• Dependents may qualify for some benefits
• Physical or mental condition that prevents work for at least 12 months
• Or, have a condition that may result in death
• Starts paying 6 months after person is disabled

Private Income Insurance Programs

• Weekly or monthly cash payments to those who cannot work from
accident or illness
• Pays 40 to 60% of normal income, although some may pay up to 75%