LIFE INSURANCE

Dr. Anita A. Patil

Associate Professor, RCL
Nature and Scope of Life Insurance
1. Definition
2. Difference Between Life Insurance and other Insurance
3. Kinds of Life Insurance
4. The Policy
5. Formation of a Life Insurance Contract
1. Definition
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 a lumpsum or in 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.
Life Ins is defined as 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’
 The essential features of life Insurance
i) It is a contract relating to human life
ii) There need not be an express provision that the payment is due
on the death of the person.
iii) The contract provides for payment of lumpsum money.
iv) The amount is paid at the expiration of a certain period or on
death of the person.
Life Ins has both short range and long range
advantages.
By life Ins, if he(insured) prematurely dies, his
family need not depend on the charity of relatives
or of the government.
If he survives the period, the insurance amount
will be useful in his old age and period of
disablement.
If he wants for an emergency, he can raise a loan
without worry.
Life Ins 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 also to social
security measures.
 2) Difference Between Life Insurance and
Other Insurance
 Life Insurance
i) The sum insured becomes
payable in full without any
requirement of proof of
loss.
- Life Ins is thus not a contract
of indemnity in the strict
sense.
Fire/Marine Ins
i)These ins are contracts of
indemnity and the assured
cannot recover more than the
loss suffered by him subject to
the maximum of the insured
amount.
- The amount recoverable under
these policies is measured by
the actual loss suffered by the
assured.
Life Insurance Fire/Marine Ins
ii) The event insured ii) the event insured
against, namely death, is against may not happen
a certain event and it is at all.
bound to happen sooner
or later.
- The uncertainty lies only
in the time when it
occurs.
Life Insurance Fire/Marine Ins
iii) The insurable interest iii) The assured must
need exist only at the have an insurable
time of the contract and interest at the time of
- it is not necessary that loss.
the interest should
continue to subsist at the
time when the policy falls
due.
Life Insurance Fire/Marine Ins
iv) The insurable interest is iv) the insurable interest is
incapable of being valued such that it is capable of
in terms of money and so valuation in terms of
no question of avoiding the money and so where there
policy on the ground of is gross over-valuation, the
over-valuation however policy may become void as
gross it may be arises. a wager.
Life Insurance Fire/Marine Ins
v) the contract is for the whole v) The contract is for a short
life or generally for a time, usually year to year only,
sufficiently long time and is a and the insurance
continuous contract with a automatically comes to an end
provision that if the premium after the expiry of the year.
is not paid annually or at
- It can be renewed by paying
stated intervals the contract
the premium.
should lapse.
 Kinds of Life Insurance

1. Whole –Life Insurance

2. Endowment Insurance
3. Annuity Insurance
4. Terms Insurance
5. Joint-Life Insurance
6. Advance Insurance
3) Kinds of Life Insurance

i) Whole-life Insurance:
- this is the original and normal form of insurance.
- Under this policy, the assured agrees to pay fixed
premiums periodically throughout his life.
- The policy is payable on the death of the assured
to his legal representatives, assigns or nominees.
- This is intended for the benefit of the members of
the family of the assured after his death.
ii) Endowment Insurance

Under this policy, the assured agrees to pay fixed

premiums periodically, not throughout his life but for a
term of years or until he attains a particular age say 50
or 55 years.
The policy amount is payable to the assured at the
end of the stipulated time; but if he dies before that
time the amount is payable to his legal representatives
or assigns or nominees.
This is intended for the benefit of the members of the
family if he dies before the time.
iii) Annuity Insurance

Under this policy, the insurer undertakes

to pay a certain fixed sum as annuity by
monthly payment either for the expiration
of the specified period or earlier if death
should occur to the assured.
This is as though to provide pension or
family pension to the assured.
iv) Joint-Life Insurance

It is an insurance on the joint life of husband and

wife and the money under the policy becomes
payable on the death of either of them.
v) Advance Insurance
This is another modern form of assurance in which
the policy provides for the payment of a lumpsum
amount to the assured in consideration of his
agreeing to pay the premiums for a specified period
or for the life of the assured if his life should
terminate before the end of that period.
Ex: this kind of insurance may be found in
contracts to furnish funds for the building of house.
vi) Group Insurance
In the field of industry, group insurance are also recognised.
This is an insurance on lives of a group of persons, usually the
employees under the same employer, under one policy.
4. The Policy: Schedule Type
This is modern form and its contents may be
summarized as follows:
a) Policy number and Date of commencement
b)Table & term governing the policy based on the
information supplied by the propositor and the
actuarial tables prepared on the pattern of information
c) Sum assured
d)Due date of premium to be paid and the mode of
payment (whether yearly/half yearly/
quarterly/monthly)
e) Installment premium payable
f) Proposal number and the date of proposal Name of
the nominee under sec 39.
g) Name and address of the proposer of the life
assured
h) Date of maturity
i) Date of last installment payment
j) Date of birth admitted
l) Payment to be made and event of the happening of
maturity.
m) To whom sum assured payable
n) Period during which premium payable
o) Dates when premium payable
p) Condition and privileges not applicable
q) Special conditions as per attached clause specifying
covenants of title and conditions.
r)Habendum clause expressing the quantity of the estate
or interest which the assignee is to take.
s) Execution by authority affixing his/her signature
t) Stamps under stamp Act
u) Date of delivery
5) Formation of a Life Insurance Contract
Like any other contract, a contract of insurance must satisfy the

essentials stated in the Contract Act, 1872.

Section 10: All 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.
Essential Elements of Contract
a) An agreement
b) Competency of parties
c) Free consent
d) Consideration and
e) Lawful object
Offer in life insurance
Offer in life insurance is usually made by the assured
in the printed form of the proposal supplied by the
insurer.
This proposal is contained namely
a) Proposal form
b) Medical examination report consisting of two parts
i) Family history and
ii) medical examination report
c) Agent’s report
Contd.
The proposer signs a declaration at the foot of the
medical report declaring that to the best of his
knowledge and belief the answers that have been
given by him are correct and that they form the basis
of the contract between him and the insurer.
The offer to be operative should be communicated
and this is generally done in life insurance, by the
insurance agent with his report and the friend’s
report.
Acceptance
The insurer on receiving the papers containing
the proposal scrutinizes them and when they are
found in order he signifies his assent thereto by a
letter and the letter is called the letter of
acceptance.
Unless this is sent there is no acceptance, though
a cheque for the premium is sent and the money is
received and retained till after the death of the
insured.
Event Insured
Against in Life
Insurance
Event Insured
The event insured against in ordinary life insurance
is the death of the life assured arising from disease
or accident.
It is immaterial whether the death is caused by
natural or accidental causes or even due to the
criminal act of a third party.
A contract to be valid must satisfy the element of
legality of consideration and object.
Courts of law do not enforce contracts, the objects of
which are against public policy.
One of the cardinal rules of legal theory based
on public policy is that no man shall be allowed
to take advantage of his own wrong and this rule
is expressed in the maxim ex turpi cause non
oritur actio, that is, no cause of action arises out
of a wrong.
Based on this principle, the legal
representatives of the assured can recover on a
life policy of the assured on his death.
Two exceptions

i) Where death of the assured is

caused due to the violation or a
rule of criminal law by the assured
himself; and
ii) Where death is the result of a
suicide or Felo De Se
Murder
Murder is one of the most serious offences and therefore on

principles of justice, equity and good conscience, the law lays down

that a murderer cannot inherit the property of the murdered person

and to hold otherwise.

It would be allowing a person to take advantage of his own wrong.

 Willful misconduct of the assured -
Implied exception
The willful misconduct of the assured has always been treated as an
implied exception in a policy not only in life insurance but in other
branches also.
Ex: in the case of fire insurance where the fire is caused by the willful
misconduct of the assured, he is debarred from recovering on the policy.
Similarly where a person takes a life insurance on the life of another and
later kills him neither, he nor any person claiming under such assured is
entitled to recover under the policy either on the ground that there is an
implied exception or it is against public policy.
Liberty National Life Insurance Co v. Weldon, (1957)
Where a registered nurse effected three policies from three different
companies on the life of her niece without the knowledge of the parents of
the life assured, the niece was a child of two years.
One day the nurse visited the child’s house and gave her soft drink
containing arsenic as a result of which the child died within a few hours.
The nurse was prosecuted and convicted for murder. Not only this, but the
insurance companies were held to pay damages to the parents of the child for
their negligence in issuing policies to one who had no interest in the life of
the assured.
Willful act of Independent
third party
Where the misconduct which resulted in the loss
is caused even by a willful act of an independent
third party, the implied exception does not
apply and the assured or his representatives are
not deprived of their right to recover under the
policy.

The major source of the risk is from the willful or

negligent conduct of the third parties.
 Insured Sentenced to Death
If the insured violates the law or commits an act punishable with a

capital punishment and if he is sentenced to death, he is said to have

brought death on himself and

The rule of public policy that no one can make a profit out of his own

wrongful or culpable conduct comes into play and debars the assured or

his representatives
Amicable Insurance Society v Bolland (1830)
Where a person is sentenced to death for
committing the murder of another person and
loses his life in execution of the sentence,
It was held that all persons on whom the right to
recover devolves by operation of law and who
claim through such a convict are debarred from
claiming under the policy.
 Beresford v Royal Assurance Co (1935)
One major Rowlandson insured his life in 1925 and the sum assured was payable on
his death to the executors of his estate.
It was provided in the policy that if the assured shall die by his own hand, whether
sane or insane, within one year from the commencement of the assurance, the policy
shall be void as against any person claiming the amount thereby assured or any part
thereof except that it shall remain in force to the extent to which a bona fide interest
for pecuniary consideration, or as a security for money, possessed or acquired by a
third party before the date of such death shall be established to the satisfaction of the
directors.
The assured paid premiums for nine years. Afterwards in a sound state of mind, he
committed suicide in 1934 as he was hopelessly indebted.
The trial court held that where death from criminal act, some years after the issue of
the policy. The trial court evidently gave greater importance to the sanctity of the
contract.
Cont…
But the Court of appeal after elaborate discussion, unanimously
reversed the judgment of the trial court.
The House of Lords in upholding the decision of the court of appeal
expressed the view that although the conditions in the policy
necessarily implied a positive undertaking by the company to pay
even if the assured died by his own hand, sane or insane, after the
expiry of a year from the date of the policy, it was contrary to public
policy that a person who had committed a crime or his personal
representative should be allowed to benefit by that crime.
Clever v. Mutual Reserve Fund Life
Association, (1892)
Lord Fry observed that ‘No system of jurisprudence can with reason
include amongst the rights which it enforces, rights directly resulting
to the person asserting them from the crime of that person
deliberate suicide and always has been regarded in English law as a
crime, though by the very nature of it, the offender escapes personal
punishment.’
‘The remaining question is whether the principle applied when the
criminal is dead and his personal representative is seeking to recover
a benefit which only takes shape after his death…..
I cannot think the principles of public policy to be so narrow as not
to include the increase of the criminals’ estate amongst the benefits
which he is deprived of by his crime. His executor or administrator
claims as his representative and as his representative falls under the
same ban.’
Barrandaile v Hunter, (1843)
There was a term in the policy that if the assured die by his or her own
hands or by hands of justice or in consequence of a duel, the policy should
be void.
The assured threw himself into the river Thames and was drowned. The Jury
found that he died so voluntarily but he was not capable of distinguishing
between right and wrong.
It was held that the contract will govern and his act amounted to ‘death by
his own hands’ and the insurance company was not liable as the clause in
the contract providing exception to the liability of the insurer include all acts
of self-destruction.
Summary
 A clause in the policy may do one of these two things namely
a) It may provide exemption to the insurer from liability in all cases of
self-destruction, whether sane or insane, or
b) It may provide for liability of the insurer if suicide is committed after a
particular period, say one or two years from the date of the policy
whether the suicide is committed while the assured is sane or insane.

In the first class of cases, there is no difficulty as it provides an exemption from
liability.

The difficulty was felt in the interpretation of the clauses of the second type
imposing liability on the insurer when suicide is committed by the assured in a
sound state of mind.
Contd.
If liability is imposed on the insurer in case where the
suicide is committed by an insane assured there is no
difficulty.
The real difficulty lies when it is provided in the policy,
which it is usually the practice of the insurers, that the
insurer will not be liable if the insured in a sound state
of mind commits suicide within a specified time, which
implies, or in some cases it may even be expressly
provided that the insurer will be liable if the assured
even in a sound state of mind commits suicide after the
stipulated period.
Whether the contract can be enforced?
By Beresford’s case (Beresford v Royal Assurance Co
(1935)- it is against the public policy, hence Insurer is not
liable.

Another opinion that, if the assured commits suicide

with the intention of benefiting his dependents it must
be construed as a fraud on the insurance company will
not be liable inspite of providing for liability in the
policy.
In English Law
 Suicide is of two kinds
a) Felonious suicide i.e. suicide in a sound state of mind, and
b) Suicide in an unsound state of mind;
 The first kind of suicide is a crime; but latter type is not a crime.
Contd
If the suicide is due to an irresistible
impulse originating from an insane or
unsound state of mind and therefore he did
not know what he was doing, it is not the act
of the assured and hence the insurance
company cannot escape its liability.
 Indian Law
Judicial decisions in India preferred not to follow the rule in
Beresford’s case

Northern India Insurance Co v. Kanhaya Lal (AIR 1938 Lah 561):

The assured insured his life with the company and in the
letters of the contract it was provided that the policy was to
become unenforceable if the assured would cause his own
death before the policy has been in existence for one year.
The assured after one year assigned the policy in favour of
his son and 10 months thereafter he committed suicide out of
disgust. It was shown that he did it out of disgust but while in
possession of his senses.
 Cont..

In a suit by his son, the assignee, it was held by the Lahore HC

that the committing of suicide is not a crime in India and that the
rule in English law laid down in Beresford’s case has no
application in our country and the insurers were therefore liable,
the condition in the policy is that if the assured has committed
suicide within one year, then alone the company would not be
liable, but in this case the suicide was committed long after the
excepted period, the insurers were held liable.
Further it was pointed out that the English common law was
inapplicable in India as the criminal law in India was the
creation of a statute where no punishment for suicide is
provided.
 Correctness of these Decisions

i) Suicide is condemned according to the personal law of Hindus

as well as Mohammedans and it is declared to be sinful and
immoral act.
ii) It is because of the above principle, on principles of justice,
equity and good conscience, a murderer has been disqualified
from succeeding to the estate of the deceased person.
Contd
iii) It is wrong to think that an ‘attempt to suicide’ only is an
offence while ‘suicide’ is not, considering morality of the
act. In fact such a contention was raised in a different
situation in a case before the Mardras HC in Amiraju v
Seshamma where it was contended that attempt to commit
suicide is an offence while suicide is not an offence.
- It was held that suicide is not punished not because it is not a
detachable or immoral act, but because of physical
impossibility of punishing such a commission.
Contd
For these reason, it is submitted that, if a policy of life
insurance contains an agreement to pay the sum
insured, even though the assured commits suicide
while sane,
it must be considered as an agreement opposed to
public policy, within the meaning of sec 23 of Indian
Contract Act and the insurers should not be made
liable.
Contd.
In cases where the contract dealt with expressly the
event of suicide, it was said that even though the
insurance company had agreed to pay the executors or
assigns on death the sum assured if he dies by his own
hand, the contract would not be enforced in a court of
law because of the well established principle that the
rights resulting to the person asserting them from the
crime of that person could not have the sanction of law.
The view in this behalf was based on public policy in
England.
Exception to Suicide
A clause is generally inserted in the
policy that if any third party has acquired a
bona fide interest for valuable
consideration he will be entitled to recover
the amount not exceeding the sum
assured.
In City Bank v. Sovereign Assurance co,
(1884)
The assured deposited the policy and received
a loan on the security of the policy. Later on, he
committed suicide. There were other securities
also.
It was held that the debt might be paid out of
the insurance amounts, because a bona fide
assignee for valuable consideration is not
subjected to the disabilities incurred by the
assured subsequent to the assignment.
Contd.
The bona fide assignee, as noted in the general
principles of insurance law, is subjected only to the
equities the assignor was liable by the date of
assignment.
But it may be noted that this benefit is not and
cannot be extended to persons who obtained an
interest in the policy by operation of law or
bankruptcy and likewise to voluntary assignments.
Circumstances
Affecting
the Risk.
Matters Affecting the Risk
Risk in life Insurance is the risk of death at an early date due to disease
as distinguished from accident.
In life insurance facts which tend to shorten the span of the life
assured would amount to the circumstances affecting the risk and
those facts are regarded as material facts for purposes of the duty of
disclosure.

It is common practice for the insurers to put specific question in the

proposal form about these facts.
Thomson v Weems, (1884)
Lord Blackburn observed: those whose business is to insure lives calculate
on the average rate of mortality, and charge a premium which on that
average will prevent their being losers.
A life insurer makes enquiries regarding the
following facts, namely,
i) Age of the proponent
ii) His family history
iii) Personal health
iv) Moral history including habits of life,
past and present
v) Geographical position and occupation
Age of the Proponent
Age is an important material fact in life insurance
as the rate of premium depends on the age of the
assured.
The age is generally proved when the policy is
issued and if the age is admitted an endorsement
declaring ‘age admitted’ is generally made on the
policy.
When once the endorsement in writing is there
on the policy no further proof is necessary.
Proof of age
i) Birth register extract from Municipal or other
authentic public record
ii) School or college certificate
iii) Certificate of Baptism(certificate of
roman/catholic christian )
iv) Passport
v) Domicile certificate
vi) Marriage certificate
vii) Extract from service register in the case of govt
servants or employees of other authorised
institutions.
Contd.
Once the age is admitted by the insurer, the correctness of the age
cannot be questioned unless the insurer can prove that his admission
was procured by the fraud of the assured.

If age is not proved and admitted on the policy when issued, it should
be proved by the assured during the performance of his contract.
It becomes more difficult and inconvenient to prove it for the
claimant after the death of assured.
When once a date is given as date of birth, and on subsequent
verification after the issue of the policy, the date is found to be wrong
it may result in either over statement of age or under statement of
age.
 Effect of Misrepresentation of
Age
If it is overstatement, it is considered to be an innocent
misrepresentation as it will be against the interest of the
maker and so in such cases the validity of the policy is not
affected.
In such cases if the insurer accepts the proof of age, he can
be compelled to refund the excess payment towards the
premium and to adjust the rate for future payment
according to the proved age.
But when it turns out to be an understatement of age, if it is
a gross understatement or is proved to have been made
willfully, it amounts to fraud and the policy becomes
voidable.
If it does not amount to fraud the insurer may follow
either of the following two courses:
i) The sum assured may be reduced to such
amount as would have been secured if the
correct age is known at the time when the policy
is issued; or
ii) The assured may be required if he wants to
continue the policy for the entire insured
amount to pay difference of premium with
interest for the earlier period and raise the rate
of premium for future payment.
 Hemmin’s v Sceptore Life Association, (1905)
The proposer effected with the insurers an endowment policy payable at the age of 60
or at death and negligently misstated her age as 41 years though in fact she was at that
time 44 yrs of age, this fact was brought to notice of the insures in 1897 and in spite of
that the insurers accepted the premiums for 2 subsequent years.

Later they demanded from the assignee a higher rate of premium and also the
difference of premiums accumulated to date at the revised rate.
The assignee declined to pay the higher rate and tendered the original rate premium
and the insurers refused to receive the same.

It was held that the insurers had forfeited their right to claim adjustment of premium
as they accepted the original rates of premium without protest even after they came to
know about the error in age.
Houseman also observes: ‘if after becoming acquainted with a breach of warranty the life
office continues to treat the policy as valid it will be held to have waived the breach.’
In USA
The Standard Provisions Law in USA provides a simpler and better
solution for this problem by insisting a clause to be included in every
policy to the effect that ‘if the age of the assured has been misstated,
the amount payable and every benefit accruing thereunder shall be
said as the premium paid would have purchased at the correct age.’
Family History
The risk in life policies depends on longevity of
the assured and heredity throws sufficient light
and plays an important role in the determination
or the probable longevity of a person.
Therefore the medical officers usually put a
number of questions about the births and deaths
of brothers, sisters, parents and near relation,
the diseases from which they suffer then or
suffered in the past, the causes of their death,
and ages at their deaths.
Contd.
Family history gives a clue to the insurers as
to the constitution and prospects of
longevity of the assured.
Insanity of the near relatives is one of the
things to be revealed.
The assured must give correct answers
regarding the family history.
Asia Assurance Company v Kartiya Devi, (1936)

The total number of brothers and sisters

had to be filled in one column and the actual
number alive in another column, the
assured filled the first column but left the
other blank.
It was held the answer amounted to
suppression of truth and hence amounted to
misrepresentation and the policy was void.
Personal Health and Moral History
The habits of life, past and present and which tend to
shorten the life must be disclosed, eg. The use of
opium, tobacco or alcohol.
Question are often asked as to the temperate habits
of the assured.
What is intemperance has nowhere been defined but
it has been held that it is not limited to such
intemperance as would impair the general health of
the assured.
Contd.
The present state of health is material because no
prudent insurer would underwrite the life of a
person afflicted with a fatal disease or who is one
on a death bed.
The past illness also becomes material because
sometimes, some kinds of diseases leave a
permanent effect on the constitution of the person
and shorten his life, the nature and duration of
treatment becomes useful to make an enquiry
from the previous medical attendants.
 Geographical Position
The place where the applicant lives is important as
climate and environment have an appreciable effect on
one’s health.
Unhealthy surrounding have a tendency to shorten
the life.
Further, the particular place may be subject to
earthquake, volcanoes and floods.
Therefore the applicant must give his residential address.
Huguenin v. Rayley (address given was not the correct & was
not available thus insurer was not liable.)
Occupation
Information regarding the occupation is essential to
understand the nature of the risk.
If it is a dangerous occupation like a soldier, sailor,
airman or a workman in an ammunition factory the
insurers charge a higher rate of premium.
If the description is with reference to non-dangerous
occupation, it will not affect the validity of the policy.
 Sec 45 of Ins Act 1938
Section 45. Policy not to be called in question on ground of misstatement after two years.

No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from
the date of commencement of this Act and no policy of life insurance effected after the coming into force of this
Act shall after the expiry of two years from the date on which it was effected, be called in question by an insurer
on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee,
or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless
the insurer shows that such statement 1[was on a material matter or suppressed facts which it was material to
disclose and that it was fraudulently made] by the policy-holder and that the policy-holder knew at the time of
making it that the statement was false 2[or that it suppressed facts which it was material to disclose]:

2[Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is
entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy
are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.]
Amount
Recoverable Under
Life Policy.
Under Life Ins Policy the following Amounts
are Recoverable namely:
i)The amount insured on the happening of the event
insured or after the completion of the period.
ii) Bonus if declared by the company: this is also recoverable
with the insurance amount.
iii)The share of the profits: In the case of a participation
policy, a share in the profits may be recovered in addition to
the sum assured.
iv)Surrender value: In case where the policy lapses due to
non-payment of premium or where the assured surrenders
the policy the insurance company may pay a percentage of
premium paid according to the rules of the company.
Sec.113.(1) of IA 1938: Acquisition of
surrender values by policy
A policy of life insurance under which the whole
of the benefits become payable either on the
occurrence, or at a fixed interval or fixed
intervals after the occurrence, of a contingency
which is bound to happen, shall, if all premiums
have been paid for at least three consecutive
years in the case of a policy issued by an
insurer,…acquire a guaranteed surrender value,
to which shall be added the surrender value of
any subsisting bonus already attached to the
policy, and……
Cont…
…..every such policy issued by insurer
shall show the guaranteed surrender
value of the policy at the close of each
year after the second year of its
currency or at the close of each period
of three years throughout the currency
of the policy.
Contd.
Life assurance is mainly based on a co-
operative principle in the sense that the
premiums paid by the policy holders are
pooled together and after meeting the
preliminary expenses of administration,
etc, the balance is formed into or added to
a fund which is invested in good business
or which attracts an accumulated interest.
Contd.
On that basis when the calculations are made, and if
one of the policy holders withdraws from such a co-
operative enterprise, the remaining policy holder
suffer a set-back and it is the duty of the seceding
policy holder to make good not only the
administrative expenses, etc, incurred, but something
more must be deducted; but that amount also must be
fair and equitable.
Contd.
Though, under the general principle of contract law, the
breaching party is not entitled to any remedy and the
insurer is entitled to forfeit the entire premium paid,
equity leans against forfeiture and provides a claim even
to a defaulting party but at the same time he who seeks
equity must be ready to do equity and so he is also
required to forego a reasonable amount as though to
contribute to compensate the continuing policy holders
for any loss that might be caused to them as a result of
his sudden withdrawal.
Contd.
The amount payable to a seceding or defaulting policy holder
is technically called the surrender value of the policy.
The surrender value is the amount agreed to be paid by the
insurer to the policy holder whose policy lapses due to default
of payment of premium.
In actual practice, in India, after the advent of the LIC a policy
acquires a surrender value after payment of premiums for two
years or 1/10 the total number of premiums stipulated in the
policy contract, whichever is less, provided the premiums paid
exceed at least one full year’s premium.
Reserve Bank v. Peerless General Reserve
AIR 1987 SC 1023
Justice Chinnappa Reddy remarked:
‘….we suggest that there should be a
complete ban on forfeiture clauses in all
savings schemes including life insurance
policies, since these clauses hit hardest the
class of people who need security and
protection must…..’
Reserve Bank v. Peerless General Reserve
AIR 1987 SC 1023
Justice Khalid:
‘ The LIC enjoys many privileges. It has a
duty to be above suspicion. It has a duty to
serve the people in the right manner. I am
constrained to observe from my experience
that I have found the LIC heartless wherever
claims are made against it.’
Automatic Extension Clause

This clause is one of the facilities given by the Life Insurance

Corporation to prevent a forfeiture of the policy, especially, in a case
where the policy holder is in a temporal financial difficulty. Therefore
this is called a non-forfeiture clause.
Persons Entitled
to Payment.
The Assured Himself
In the case of insurance on one’s own life, the
assured himself can get the payment if he is living at
the time of its maturity.
In the case of insurance on the life of third parties
also the assured will be entitled to get the amount.
Ex: if a creditor takes a policy on the life of the
debtor, the creditor will be entitled to get the
payment. If it is the intention of the parties, the
debtor may get payment especially if the debtor paid
the premium.
Executors and Administrators
In the case of his death before the event, his
legal representative can get the payment.
It is generally provided in the policy that the
sum assured is payable to the assured or his
executors, administrators, assigns or other
legal representatives.
If the life-assured has died without making an assignment
or nomination under the policy:
The insurer ordinarily requires
evidence of legal title.
lf the person to receive the payment
under the policy by production of letters
of administration or probate of a will
and in cases where it is not compulsory
to have them, a succession certificate is
sufficient.
Contd.
But in actual practice, the LIC does not insist on
the production of the above legal documents
where the claim amount is not very large and the
deceased died leaving class heirs under the Hindu
Succession Act like, wife, sons, daughters and
mother and if there is no dispute between
themselves but makes payment to the agreed and
admitted heirs on the strength of an indemnity
bond.
Joint Family Members
Insurance on the life of a joint family member
gives rise to some difficulty.
The general rule in such cases is that, in the
absence of anything to the country, the insurance
amount is treated as the separate property of the
assured, because it is a personal contract and the
primary object of life insurance is to benefit the
wife and children.
Voluntary Assignees
The claim under a life Insurance
policy constitutes the property of
the assured.
Just as other properties, this is also
alienable and heritable.
It is an actionable claim.
Contd.
If a life insurance policy is transferred by sale,
gift or mortgage, the assignee will be entitled to
receive the payment, if it is a valid assignment
satisfying the conditions laid down in sec 38 of
the Insurance Act.
If the conditions are not satisfied the assignment
is invalid and the assignee cannot get any rights
under it.
Contd.
After the valid assignment is made it cannot be
revoked and the assignor ceases to have any
interest in the policy.
As in the case of a gift of any other property,
the donor and the donee may agree that on the
happening of any specified event, which does
not depend upon the will of the donor, a gift
shall be suspended or revoked wholly or in
part.
Contd.
Ex: if a policy holder assigns the policy
subject to a condition that if he survived
until the date of maturity, the condition is
valid and the assignor gets the rights in
the policy on the happening of the
condition.
Lakshmi Kutty v. T M Vishnu Nambisam, (1939)

An endowment policy was assigned by the assured

in favour of his wife by an endorsement.
The assignment was duly communicated to the
insurer who registered it in his records.
The assignment contained a clause as ‘I hereby
assign the policy to my wife subject to the conditions
that if I survive her by the date of maturity of the
policy, the right to receive the policy money shall
revert to me as if this assignment has not been
made.’
Contd.
Before the policy was matured and during the
lifetime of the assignee, the assignor died.
The money due under the policy in the hands of the
assignee were sought to be attached in execution of a
money decree obtained against the deceased,
but it was held that the assignment operated as a
present transfer in favour of the assignee giving her
an absolute interest under the same.
Assignment to Create Security
A life insurance policy may be
assigned as a security for the
repayment of loan taken by the
assured when it may be called a
mortgage.
 Mortgages of life policies by deed of assignment usually include the
following covenants and provisions:

i) A covenant by the borrower that he will pay the premium and other
moneys required to keep the policy on foot and will restore the
policy if it becomes voidable.
ii) A covenant by the borrower that in the event of the policy becoming
void he will effect a new policy for an equivalent amount and assign it
to the lender.
iii) A power to the lender to pay any premium in arrears and add the
amount to the principal.
iv) A power to the lender to exercise his power of sale by way of
surrender to the life office.
v) A power to the lender, if his power of sale has arisen, to convert the policy
to a fully paid-up policy.
Contd.
Credit institutions lend money on the security of
policies upto a certain percentage of their cash
value.
Even the insurers as a matter of common
practice and as an integral part of their services
to the assured grant loans even upto 90-95% of
the surrender value of the policies on the
security of the unencumbered life policies.
Lien
The general rule is that a stranger cannot get a
lien on the policy. In case of a life ins policy a lien
may be created especially if the policy is on the
life of a third person,
eg, if a creditor takes a policy on the life of the
debtor and if the debtor fails to pay the
premiums, and if they are paid by the creditor, a
lien may be created on the policy.
Contd.
A right of lien does not arise by the mere fact of the
payment of premium though such payment is
necessary for the preservation of the property.
In Re Leslie, Leslie v French,1883: the husband paid
the premiums voluntarily due on a policy on the life
of his wife and claimed a lien on the policy to the
extent of the premiums paid by him. It was held that
the husband has no lien on the policy,
Nominees or Nomination
When a person is named in proposal form as the person
for whose benefit the insurance is effected such person
whose name is mentioned is called the nominee.
The insurer agrees with the assured that he would pay
the assured amount to the nominee in case of the death
of the assured.
The nominee is a third party to the contract and he is
neither a party to the contract nor has privity with it and
so in case of breach of payment by the insurer, he cannot
recover the amount by suit.
Cleaver v. Mutual Reserve Fund Life
Association,(1892)
Where a husband effected a policy on his own life and also
expressed in the proposal form that the sum assured should
be payable to his wife living at his death but otherwise
payable to his legal representatives.
The wife was convicted of the murder of her husband.
The trust created by the policy in her favour under the
Married Woman’s Property Act, having become incapable of
being performed by reason of her conviction.
The assurance money constituting a resulting trust for the
assured was paid to his executors.
Sec 39 of IA 1938: Nomination by
policy-holder
(1) Theholder 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 policy holder to appoint in the
prescribed manner any person to receive the money
secured by the policy in the event of his death during
the minority of the nominee.
 Cont…
(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.
Cont..
(3) The
insurer shall furnish to the
policy-holder a written acknowledgment
of having registered a nomination or a
cancellation change thereof, and may
charge a fee not exceeding one rupee for
registering such cancellation or change.
Contd..
(4) A transfer or assignment of a policy made in
accordance with section 38 shall automatically cancel a
nomination:
Provided that the assignment of a policy to the insurer
who bears the risks 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.
Contd..
(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 policy-holder or his
heirs or legal representatives or the holder of a
succession certificate, as the case may be.
Contd..
(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.
Sarojini Amma v Neelakantha Pillai, AIR
1962 All 355
It has been held that a nominee under a policy of life
insurance has a bare right to collect the money
payable under the policy on the death of the assured
and give a good discharge to the insurer.
The nominee does not become the owner of the
money due under the policy and he is liable to make
it over to the legal representatives of the assured,
thus the nominee acts only as a receiver.
 Sabrata Devi v Usha Devi, AIR 1984 SC 346

A person insured his life and appointed his wife Usha Devi as nominee
to receive the sum assured on his death. Sometime later he died, leaving
behind his wife, son and mother Sabit Devi as his nearest legal heirs.

On the strength of the nomination Usha Devi claim absolute right to the
sum assured to the exclusion of the other two legal heirs. The SC
dismissed her claim and held: A mere nomination made u/s 39 does not
have the right of conferring on the nominee any beneficial interest in the
amount payable under the life insurance policies on the death of the
insured.
Contd..
The nomination only indicates the hand which is
authorised to receive the amount on the payment of
which the insurer gets a valid discharge of its liability
under the policy, the amount however can be claimed
by the heirs of the assured in accordance with the law
of succession governing them… the language of sec 39
is not capable of altering the course of succession
under the law.
Also there is no warrant for the position that sec 39
operates as a third kind of succession.
Nomination in favour of Wife and Children

The kind of nomination stands on a separate footing

and forms another exception to the rule that a
nomination is subject to cancellation.
Sub-sec 7 of sec 39 of the Insurance Act provides
that the rules contained in that section will not
apply to any policy to which sec 6 of the Married
Women’s Property Act applied.
So for a better understanding of the scope of this
sub-section, ss. 5 & 6 of the Married Women’s
Property Act may be noted.
Sec.5 of Married Women’s Property Act, 1874
Any married woman may effect a policy of
insurance on her own behalf and
independently of her husband; and the same
and all benefits thereof, if expressed on the
face of it to be so effected shall ensure as her
separate property, and the contract evidenced
by such policy shall be as valid as if made with
a unmarried woman.
Sec 6
A policy of life insurance effected by any married man
on his own life, and expressed on the face of it to be for
the benefit of his wife and children, or any of them shall
ensure and be deemed to be a trust for the benefit of his
wife, or of his wife and children, or any of them
according to the interest so expressed, and shall not, so
long as any object of trust remains, be subject to the
control of the husband, or to his creditors, or form part
of his estate.
Nothing herein contained shall operate to destroy or
impede the right of any creditor to be paid out of the
proceeds of any policy of assurance which may have
been effected with intent to defraud creditors.
Contd..
From this it follows that such a nomination cannot be
cancelled and it confers on such nominees the beneficial
interest in the proceeds of the policy even to the exclusion
of the assured. It becomes a statutory trust and neither the
assured or his creditors cannot tamper with it.
This is a welcome provision based on public policy. The
assured is not permitted to deprive his dear wife and
children of his helping hand.
Even the court officials like official receiver or official
assignee cannot have a right to proceed against an
insurance policy covered by such a nomination.
Contd..
The statutory trust is spelled out from the use of
the words for the benefit of wife and or children.
But sometimes such precise words may not be
used.
It is open to the court to apply a liberal
interpretation and see whether the assured
intended by such nomination that the policy in
the event of his death should ensure for the
benefit or his wife.
Krishnanchettiyar v Velayu Ammal, AIR 1938 Mad
90 (FB)
Full Bench went a step further in its
policy of liberal construction:
Where also the trust concept was not
clear from the words used in the policy
itself, but still it was held that the
proposal submitted by the assured could
also be looked into for the purpose of
understanding his intention.
Contd..
The importance of the decision lies in
establishing the liberal outlook of the judiciary in
the interpretation by holding that the court in
spelling out a statutory trust in favour of wife
and or children can look not merely at the policy
but even at the entire transaction for the purpose
of gathering the unexpressed intention of the
assured in this regard.
Bharat Insurance Co Ltd v Lakshmi Devi, AIR
1948 Lah 21
Krishnanachettiyar v. Velayu Ammal, has been
approved and followed in this case.
Where the sum assured was expressed to be
payable to the life assured on his attainment of
60 yrs or his wife…on his death if earlier. The
assured with the consent of the nominee
converted the policy into a paid-up policy
subsequently he raised a loan with the
company on the security of the policy.
Contd..
On the death of the assured the question arose whether the
company was entitled to deduct the sum representating the loan and
interest thereon from the amount payable to the widow of the
assured.
It was held that a trust was created in favour of the wife of the
assured from the very inception of the policy under sec 6 of the
Married Women’s Property Act;
that the assured could not raise a loan which would adversely affect
the trust in her favour and that, therefore, the company was not
entitled to deduct the amount representing loan and interest
thereon from the sum payable to her.
Contd..
The nomination to come within the scope of
sec 6 of the MWPAct shall be made at the time
when the policy is issued and any nomination
by subsequent endorsement even in favour of
wife or wife and/ or children will not give rise
to the presumption of statutory trust.
In cases where trust arises, the official trustee
has the same powers and duties as a trustee
appointed under the Trusts Act.
Contd..
Further it may be noted that the proviso to sub-s
7 of s 39 of the Insurance Act 1938, provides that
after 1946, the date when the proviso was added,
a nomination which hitherto brought the
transaction under MWPAct, does not bring it
within its purview and broadly speaking the
statutory trust does not arise by implication.
K. Sasikala, v. Life Insurance Corporation of India AIR
1999 AP 32
Insurance Act (4 of 1938), S.38 and S.39 -
INSURANCE - Life Insurance Policy - Transfer - Effect
on nomination - Nomination is automatically
cancelled - Transferee is entitled for benefits under
policy - Nominee has to claim such benefit from
transferee.
In case of transfer of Insurance policy the
nomination stands cancelled from the date of
transfer and thereafter the Life Insurance
Corporation would recognise only the transferee as
entitled for any benefit under the policy.
Contd..
It also makes the transferee liable for any claim by the claimant and
not the insurer. Thus the claimant or the nominee, could proceed
against the assignee and the Corporation need not be made a party
to such proceedings, as its liability stood transferred to the
transferee
Contd..
Thus, where the policy holder transferred his policy
in favour of the bank in discharge of surety amount
due to bank, the effect of such transfer was that his
wife who was a nominee, automatically ceased to be
a nominee and was not entitled for the benefits
under the policy after his death.
It was a transferee bank which was entitled for such
benefits. Further, the bank was liable to pay the
amount to the legal representatives of deceased
policy holder.
 Settlement of insurance claim
A life insurance policy becomes a claim either by maturity,
occurrence of the death or occurrence of contingency.
Section 14(b) of the insurance Act 1938 requires that a register or
record of claim should be maintained.
Right of the nominee is not recognized after the death of the life
assured subsequent to the maturity of the policy. Because of specific
provision of section 39(5), after maturity it is a debt.
Cont
In case of policies financed through HUF only the Karta of the family
can give a valid discharge. No nomination or assignment may be
made by the Life Assured.
As per the provisions of IRDA(Protection of Policy holder’s Interests)
Regulations, 2002 (a) all queries/requirements to be raised in one
go within 15 days of intimation of death.(b) claim to be paid/denied
within 30 days from the date of all requirements.
 Early claim and non Early
claim.
Early claim – death arising within 2 years from the date of risk or
revival/reinstatement.
Non Early claim –Death arising after 2 years.
Where the claim is informed after three years of death law of
limitation is applicable and nothing is payable. On limitation alone a
genuine claim need not be rejected.
Section 39(6) of the insurance Act provides when there are more
nominees than one the policy moneys shall be payable jointly to
nominee/nominees who survive/s the Assured.
Status of Claimant and
requirements
No documentary proof of any sort need be called for in proof of
adoption. Discrete enquiries be made.
In case of minor claimant in certain cases based on amount payable
guardianship certificate may be waived.
In case of accident policies which cover AB one more Sum Assured is
paid as Accident Benefit, in case of Man Missing AB is not payable.
Ex-gratia payment is considered where there is no legal liability on
the corporation, as an equitable relief such payment may be
considered.
Chairman’s Relaxation Rules
After at least two full years been paid under a policy if death were to
occur
(a)after days of grace but before three months of the due date of
FUP, consideration of claim to the extent of full sum assured together
with bonus.
(b)death within 3 months to 6 months claim to the extent of half
the sum assured.
( c) between 6 months and one year consideration of claim to the
extent of proportionate notional paid-up value on the basis of actual
premium paid.
Maturity Claims
In case of Endowment type of Policies, amount is payable at the end
of the policy period.
A letter informing the date on which the policy monies are payable to
the policyholder at least two months before the due date of payment.
The policyholder is requested to return the Discharge Form duly
completed along with the Policy Document. On receipt of these two
documents post dated cheque is sent by post so as to reach the
policyholder before the due date.
 Survival Benefit
Some Plans like Money Back Policies provide for periodical
payments to the policyholders
In case of higher amounts more than prescribed the Insurer the
policy bond and discharge voucher is called for.
 Death Claim
The death claim amount is payable in case of policies are in force or
where the death occurs within the days of grace.
On receipt of intimation of death of the Life Assured the Insurer calls for
the following requirements:
a) Claimant’s Statement giving details of the deceased and the
claimant.
b) Certified extract from Death Register
c)Evidence of title to the deceased’s estate if the policy is not
nominated, assigned or issued under M.W.P. Act.
d) Original Policy Document
Death within three years
a)Medical Attendant’s Certificate to be completed by the Medical
Attendant of the deceased during his/her last illness
b) if the life assured received treatment in a hospital
c) to be completed by the Medical Attendant who treated the
deceased life assured prior to his last illness.
d)Certificate of Identity and burial or cremation to be completed
and signed by a person of known character and responsibility
e) Certificate by Employer if the assured was employed person.
f)Certified copies of the First Information Report, the Post-mortem
report and Police Investigation Report if death was due to accident
or unnatural cause.
Claims procedure – IRDAI
Guidelines
All requirements shall be raised together and not in piecemeal
within a period of 15 days of the receipt of the claim.
A death claim shall be paid, rejected or repudiated giving all relevant
reasons within 30 days from the date of receipt of all relevant
papers.
When a claim warrants an investigation within 90 days, and settled
within 30 days thereafter
Interest payable
If there is delay on the part the insurer shall pay interest at a rate 2%
above bank rate from the date of receipt of last requirement.
In respect of Maturity and Survival Benefit it shall be paid on the
date of maturity or Due date failing which interest 2% above bank
rate shall be payable.
The interest shall be paid suo motto without waiting for specific
demand from the insured.
Amount recoverable under
Policy
Any Premium dues, X Charge
No tax is recoverable from Death and Maturity claim payments.
When interest is paid Tax on interest is recovered which is not
correct understanding of law.
In case of mortgaged policy or collateral security the due amount
towards loan can be recovered.
Settlement of Claim
Full and final settlement.
After giving discharge can there be further claim.
More than one legal heir/nominee joint discharge is given.
Can there be proportional payment of claim.
Settlement of Claim and Payment of
Money in Life Insurance.
Liability of the Insurer to Pay
When the event insured against happens, the
assured becomes entitled to enforce the policy and
the insurer becomes liable to pay the amount
secured in the policy in accordance with its terms.
The operative portion of an Endowment Life
Assurance Policy states that the insurer will pay the
sum assured with bonuses to the persons to whom it
is expressed to be payable in the schedule upon
proof to the satisfaction of the insurer;
Proofs
i) of the happening of event on which the
sum assured is to become payable in
terms of the schedule,
ii) of the title of the person or person
claiming payment and
iii) of the correctness of the age of the life
assured stated in the proposal, if not
previously admitted.
Claim by Maturity
Well in advance of the date of maturity the Life Insurance
Corporation sends maturity intimation informing the insured of all
the requirements which he has to satisfy for enabling him to receive
payment under the policy.
The requirements for settlement by a maturity claim may
be briefly stated as follows:
i) The policy document must be submitted by the
claimant to the corporation office.
ii) If the age is not indorsed on the policy by the
company as admitted, the claimant should send
the proof of age.
iii) If there has been an assignment under the policy
by a separate document, the original of such
deed of assignment or reassignment should also
be submitted along with the policy.
Contd..
A discharge form is supplied by the insurer and that
has to be signed, stamped and attested.
The discharge form is an acknowledgement of
receipt of money and so it should bear a 20 paise
revenue stamp.
He should get it attested by any witness who has
seen the assured sign or fix his mark or receive a
personal acknowledgement from him
Contd..
The discharge form has to be sent along
with (a) Policy (b) Proof of age and (c)Deed
of assignment or reassignment, if any.
If the policy holder desires payment either
by money order or demand draft he should
intimate the corporation by signing at the
appropriate place in the discharge form.
Claim on Death
The claimant of the amount due on the policy, usually the
heirs, assignees or nominees should inform the insurer of
the death of the assured within the stipulated time, if any,
in the policy and in its absence within a reasonable time.
What is reasonable time is a question of fact.
On receiving the intimation certain forms will be sent by
the corporation to the claimant or claimants informing
him or them of the requirements to be satisfied for
setting the claim.
In case of death of the assured after 3 years from the
date of the policy the requirements are:

i) The 3 requirements stated above in the case of a claim on

maturity.
ii) Claim Form A which is the statement of the claimant
iii) A certificate of death of the policy holder issued by the
Municipal Death Registry, or by a Public Records Office which
maintains the records of births and deaths in the locality.
Contd..
It is the duty of the claimant to make all the statements
required in Form A and they should be true and complete.
If the policy has run for five years along with the ‘Claim Form
A’ the ‘Discharge Form’ will also be issued.
If the policy did not run even for two years, that is, if the
assured died within two years, from the date of the policy, the
Corporation insists on the following requirements also
namely;
a)If the assured who died is an employee, a certificate in Form
E from the employer that the assured was his employee and
that he died; and
Contd..
b) A statement in Claim Form B from the doctor who
attended the assured in the last illness and in case
he is not an employee, besides ‘Claim Form B’ from
the doctor who last attended on the assured, Claim
Forms C and D must also be submitted.
Claim Form C is a certificate of cremation or burial
from an independent person who has attended the
funeral and seen the dead body and Claim Form D
is a certificate of identity by a respectable person.
Similarly when Form B, a certificate are available,
Form C is not necessary.
Contd..
In the case of policies lapsed for non-
payment of premium, the question
whether any portion of the sum assured is
payable is payable depends on the
conditions in the policy.
The sum payable depends on the period
for which premiums have been paid.
LIC’s endowment policy contains the following
conditions on the back of the policy namely
a) Nothing is payable if regular payment
of premiums has not been made at
least for two years;
b) If at least premiums for two years
have been paid before the default
occurs, the policy will become paid-up
for a proportionately reduced amount
which will be payable;
Contd..
provided that, if at least premiums for 3 full
years have been paid and death occurs within 6
months thereafter from the due date of the first
unpaid premium, the sum assured is paid as if
the policy has remained in full force, subject
deduction of the unpaid premiums etc and
appropriate claim forms are supplied
accordingly as indicated above.
Contd..
On receipt of these forms, the insurer makes his own
investigation and if there are no suspicious
circumstances, the insurer issues the discharge form
to the claimant to be sent back to the insurer after
filling it up properly.
When the assured dies an unnatural death, such as
by accident, suicide or due to unknown causes, the
insurer makes further investigations after seeking
further information from the claimant.
Contd..
Even if the policy is in force at the time of death, or on
death of the assured, whether a person is entitled to
some amount according to the conditions stipulated in
the policy, a further question arises whether the death is
accidental, or intentional.
If the death is by suicide, there is a further clause, usually
inserted in the policy that even if death is caused during
the subsistence of policy, if it occurs within a period
specified therein, the sum assured is not payable and in
case it is after that period the insurer will be liable,
notwithstanding the death being intentional.
Contd..
Whether death was by accident or by design assumes
importance in cases where the policy excludes the
liability of the insurer in case of death by suicide during
the period of contract or where the full amount assured
is not payable in such event.
The LIC policies excludes liability only where suicide is
committed within one year from the date of the policy.
The question becomes complicated especially where
conclusive evidence about the cause of death is not
available. In such cases the matter rests on legal
presumptions.
In Rajani Bai v New India Assurance
Where death was caused by the fall of the
assured from the 4th floor, in the absence of
evidence whether it was intentional or
accidental
the court held that the presumption against
violence or suicide must be raised, and in
the absence of evidence of rebuttal the
presumption must be allowed to prevail.
Ibrahim v Mackinnon Mackenzie and Co.
Where Ibrahim was a deck hand on board the
ship SS Dwarka on the high seas, he was last seen
on the deck on 16 Dec 1961 at 3 am but at 7 am
was found missing
the court inferred and held that he died by
accident and also observed that in such
circumstances direct or positive evidence of his
falling overboard or being drowned was not
necessary.
Contd..
However, in cases where there are conflicting claims,
or where the claimant is not in a position to obtain
sufficient proof of legal title or if it is for any reason
not possible to obtain a satisfactory discharge,
the insurance company may apply to the court
before the expiry of 9 months from the date of
maturity or date of notice to the company.
The Insurance Act 1938 provides for payment into
court and states:
Sec.47 of IA : Payment of money into Court
(1)Where in respect of any policy of life insurance
maturing for payment an insurer is of opinion that by
reason of conflicting claims to or insufficiency of proof
of title to the amount secured thereby or for any other
adequate reason it is impossible otherwise for the
insurer to obtain a satisfactory discharge for the
payment of such amount,
the insurer may, apply to pay the amount into the
Court within the jurisdiction of which is situated the
place at which such amount is payable under the terms
of the policy or otherwise.
Contd..
2)A receipt granted by the Court for any such payment
shall be a satisfactory discharge to the insurer for the
payment of such amount.
3)An application for permission to make a payment into
Court under this section, shall be made by a petition
verified by an affidavit signed by a principal officer of the
insurer setting forth the following particulars, namely:
a) the name of the insured person and his address;
b)if the insured person is deceased, the date and place of
his death;….
Contd..
c)the nature of the policy and the amount secured by
it;
d)the name and address of each claimant so far as is
known to the insurer with details of every notice of
claim received;
e)the reasons why in the opinion of the insurer
satisfactory discharge cannot be obtained for the
payment of the amount; and
f)the address at which the insurer may be served with
notice of any proceeding relating to disposal of the
amount paid into Court
Contd..
(4) An application under this section shall
not be entertained by the Court if the
application is made before the expiry of six
months from the maturing of the policy by
survival, or from the date of receipt of notice
by the insurer of the death of the insured, as
the case may be.
Contd..
(5) If it appears to the Court that a
satisfactory discharge for the payment of
the amount cannot otherwise be obtained
by the insurer it shall allow the amount to
be paid into Court and shall invest the
amount in Government securities pending
its disposal.
Contd..
(6) The insurer shall transmit to the Court every
notice of claim received after the making of the
application under sub-section (3), and any
payment required by the Court as costs of the
proceedings or otherwise in connection with the
disposal of the amount paid into Court shall as to
the cost of the application under sub-section (3)
be borne by the insurer and as to any other costs
be in the discretion of the Court.
Contd..
(7)The Court shall cause notice to be given to
every ascertained claimant of the fact that the
amount has been paid into Court, and shall
cause notice at the cost of any claimant
applying to withdraw the amount to be given to
every other ascertained claimant.
(8)The Court shall decide all questions relating
to the disposal of claims to the amount paid
into Court.
Contd..
The provisions of this section are
applicable only to claims due under life
insurance but not other insurance like
fire, marine etc.
Further, this section does not apply to
small insurances as they are covered by
a sec 47A of the Ins Act 1938.
Sec.47A of IA: Claims on small life insurance
policies
(1)In the event of any dispute relating to the settlement of a
claim on a policy of life insurance assuring a sum not
exceeding two thousand rupees (exclusive of any profit or
bonus not being a guaranteed profit or bonus) issued by an
insurer in respect of insurance business transacted in India,
arising between a claimant under the policy and the insurer
who issued the policy or has otherwise assumed liability in
respect thereof,
the dispute may at the option of the claimant be referred to
the Authority for decision and the Authority may, after
giving an opportunity to the parties to be heard and after
making such further inquires as he may think fit, decide the
matter.
Contd..
(2) The decision of the Authority under this
sub-section shall be final and shall not be called in
question in any Court, and may be executed by the
Court which would have been competent to decide
the dispute if it had not been referred to the
Authority as if it wore a decree passed by that Court.
(3)There shall be charged and collected in respect of
the duties of the Authority under this section such
fees whether by way of percentage or otherwise as
may be prescribed
Interest on Policy Amount
Where there is a delay in payment of the claim, the
question arises whether interest should be paid on the
amount due under the policy.
There is no provision in sec 47 or any other section as to
whether court can allow interest on the amount to the
rightful claimant for the period of delay in payment to
him.
Where there is unreasonable delay in payment of the
policy money in settlement of the claim, the claimant can
demand interest from the insurer by way of damages.
(Interest Act 1978)
The discussion is first about the Insurance Laws and then about the
important amendments.
The amendments which affect consumer will be discussed briefly.
The Legal fraternity plays an important role in assisting the
beneficiaries for early settlement of claim.
 Important aspect in assessing the
risk.
The health and habits of the proposer
The financial capacity.
The Nature of employment for ascertaining the moral and
occupational hazard.
Importance of proposal form.
Warranty clause, Basis of contract
When does the proposal turns into policy.
Is utmost good faith is only at the time of entering into contract of
continues through out.
Any change between submission of proposal till issue of policy
should also be informed.
Characteristics of Proposer.
Moral character and its implications in underwriting decision.
Question No 11 of the proposal form is very important and question
raised in the form need only be answered.
It is only at the time of entering into contract and not at the time of
performance.
Details recording previous proposal and policy are vital for assessing
the risk.
 Issues involved at Entry.
Whether the contract of insurance is concluded. (LIC vs. Raja Vasireddy
Komalavallikamba( AIR 1984 SC 1014)
The change in health condition from the date of submission of
Proposal to date of issue the policy. (Proposal Form)
The various dates and its implications for applying certain policy
conditions.
Date of Policy, Date of Commencement of Policy, Date of
Commencement of Risk.
Obligations of the Insured and insurer.
The implications of Medical Examinations and requirements. The role
played by Insurance intermediaries.
Issues involved during the Currency
of the policy.
The interpretation of the policy conditions.
Revival of Lapsed Policy and requirements.
Section 50 of the Insurance Act.

Section 45 implications at time of revival before and after

amendement.
Issues at the time of Maturity
The effect of nomination before and after amendment.
The effect of assignment at the time of payment.
Unnatural Death and its implications.
The payment of Accident Benefit.
Payment of Disability benefit
 Surrender value.
Surrender value is a benefit to a policyholder when he
terminates his insurance contract with the Insurer.
The amount payable in entire cancellation of insurance
contract before the policy matures is called the surrender
value of the policy.
Section 113(1) of Insurance Act 1938 deals with
Surrender value.
Certain type policies like two year temporary assurance
plan, Mortgage redemption plan surrender value is not
payable.
Guaranteed Surrender value
The minimum GSV under the policy is equal to
30% of the total premiums paid excluding
premiums for the 1st year, all extra premium,
and/or additional premium for accident
premium, provided premiums have been paid
for at least 3 full years.

In addition, cash value of any existing vested

bonus/guaranteed addition will also be allowed.
 GSV & SSV
⚫ More liberal surrender value called Special surrender value is
allowed, which will be more than GSV at longer durations.
⚫ GSV is related with premium and SSV is related to paid up value.
⚫ Surrender value factors depend on the original term of the policy
and duration elapsed from the date of commencement of the
policy.
 Paid Up Value.

Condition No.4 of the policy clearly states what is Paid Up

Value.
The relaxation in case of policies for which 3 years payment and 5
years payments have been made forms part of the condition. This
depends on duration of lapsation.
Specific to LIC policies.
Contd..
Paid up value is the ratio between
the number of years of premium paid
to the number of years premium
payable.
The above result is multiplied with
sum Assured to arrive at Paid up
value at a particular time.
 Suicide.
⚫ Clause 6 of the policy condition deals with suicide. There is no
difference between sane or insane suicide.
⚫ After the risk under the policy has commenced and before the
expiry of one year from the date of commencement of risk under
the policy.
⚫ Bonafide beneficial interest of third party is protected to the
extent of valuable consideration.
 Accident benefit.
Normally policy bonds speak about Accident Benefit.
Murder is an Accident. The conditions of the Accident must be
proved.
An amount equal to sum Assured is payable as Accident Benefit.
For DAB the policy must be in force on the date of Accident, may or
may not be in force on date of Death.
Contd..
• The commencement of risk will be date of issue of FPR.
• Where the policy is dated back the commencement of risk is the
date of acceptance or the date of payment of premium which ever
is later.
• Policies which are accepted with CL 4(B) suicide is excluded for a
period of 3 years from the date of commencement of risk.
• DAB is not payable in case LA commits suicide after 1year of
policy also.
When Accident Benefit is not payable

As per policy condition for breach of law Accident Benefit is not

payable.
What is breach of law is not mentioned some of the instances we
come across are.
a. Driving vehicle without license.
b. Under influence of alcohol.
c. Killed while escaping from police custody etc
Accident Benefit

⚫ Double Accident benefit is granted as an injunctive to life

insurance cover. An extra premium of Rs.1/- per 1000 Sum
Assured is charged.
⚫ For consideration of Accident Benefit the policy must be in force
on date of accident and on date of death.
⚫ The claimant must establish date of accident and that there was
an accident , injuries sustained are the direct result of accident.
⚫ In case of murder consideration of AB must be completed but
payment must wait for court verdict.
When Accident Benefit is not
payable
As per policy condition for breach of law Accident Benefit is not
payable.
What is breach of law is not mentioned some of the instances we
come across are.
a. Driving vehicle without license.
b. Under influence of alcohol.
c. Killed while escaping from police custody etc
 FORECLOSURE OF POLICY
As per clause 6 of terms and conditions of
loan, under paid up and whole life paid up
cases where under 2 or more installments
of interest on loans are in arrears and not
paid regularly corporation will be entitled
to take foreclosure action by way of
applying surrender value towards o/s
loan, loan interest and any other dues.
 Warranty Clause
What does the warranty clause speak about
and where is it mentioned.
The power to forfeit the money for wrong
averments is also mentioned in the proposal
form.
Gives power to collect medical records.
The Doctor only records what the LA says and
also sees the LA because he is to sign in front
of him.
Is insurance based on Gender?
Insurance on Male adult lives.
Total cover varies based on age, Annual income of a male adult.
Maximum Sum Assured eligibility will be reduced to the extent of full
insurance cover taken from other insurers.
Contd..
Female lives, in India experience a higher mortality than males, at
least up to a certain age. Certain section of society Moral hazard is
also to be taken into account.
Insurance on Female Adult lives.
Category I
Category II(Married/single/widow)
Category III
 Category III
Women not covered by Category I or II are treated as category III
females for the purpose of insurance.
For married women the insurance not to exceed husband’s
insurance.
Widows and single woman without income are not given insurance.
Widows who received compensation are allowed certain particular
plans .
 Category II
Women with unearned income having sizable properties or
investments yielding income and filing income tax return.
⚫ Rules regarding financial underwriting will be as applicable to
adult males upto 1 crore.
⚫ Other members of family are adequately insured.
⚫ Female life has good education and social background.
 Important Amendments.
Section 38 Assignment
Section 39 Nomination
Section 45 Right to Question policy.
Section 44 Omitted.
Appeal Provision To Security appellate Tribunal.
Powers to IRDAI In respect of violation of
Regulation.
Health Insurance Considered as separate
Insurance.