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Comprehensive Analysis of Life Insurance Law and Practices in India

An in-depth study covering the legal framework, types of life insurance policies, LIC's role, key court cases, and suggestions for improving life insurance in India.

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MIES R.M. LAW COLLEGE, SONARPUR N A M E - S A M A R E S H P A I K S E C T I O N - B R O L L N U M B E R - 1 2 S E M E S T E R - S I X T H S E M E S T E R P R O J E C T T O P I C - L A W R E L AT I N G T O L I F E I N S U R A N C E I N I N D I A S U B M I T T E D T O – P R O F E S S O R S O U M I K A S H
INTRODUCTION  Life insurance business covers the risk of contingencies dependent on human life.  A life insurance contract is essentially a contract between an individual and an insurance provider, where the company promises to pay a specified amount of money to the family or beneficiary of the individual, in return for regular payments over a period of time.
 Life Insurance contract can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period.  Life insurance assures lump sum amount to be paid to the family if the policyholder passes away unexpectedly.  The life insurance policy provides with the much-needed cover against risk and offers you opportunities to grow your savings.  It is also an effective tool that enables you to save for future expenses that may occur, such as the higher education or marriage of children.
HISTORICAL BACKGROUND  The Life Insurance Corporation of India Act, 1956 is the most relevant statute concerned with all the aspects both primary as well as ancillary of the Life Insurance Contract in India.  The first step towards nationalisation of life insurance was taken on 19 January 1956 by the promulgation of the Life Insurance (Emergency Provisions) Ordinance, 1956.
 Out of 145 Indian insurance companies, as many as 103 had their head offices in the four cities of Bombay, Calcutta, Delhi and Madras. When the Corporation was constituted on 1 September 1956, it integrated into one organisation, the controlled business of 243 different units, Indian and foreign, which were engaged in the transaction of life insurance business in India.  The total assets of the above 243 units as on 31 August 1956 were about Rs 4,110 million and the total number of policies in force was over five million assuring a total sum of more than Rs 12,500 million. The total number of salaried employees was nearly 27,000.  These figures give a broad idea of the magnitude of the problem involved in setting up an integrated structure.
OBJECTIVES OF LIC  Its objective will be to serve the individual as well as the state.  Better and more economical management of the Business of life insurance.  Reduction in administrative expenses.  Improvement in the quality of service.  Increase in volume of business.
 To collect the savings of the people through a life insurance policy and invest that money in various financial markets.  One of the main functions of LIC is to invest fund into government securities so as to protect the capital of the people who have given their money to LIC.  It also gives loan to the various national projects which are important for economic growth.  It provides financial supports to socially-oriented projects like electrification, sewage, and water channelizing, etc.
TYPES OF LIFE INSURANCE POLICIES  Term Insurance Plan- The term insurance plan is one of the most sought-after types of life insurance policies in India. This is one of the types of life insurance policy in India that you can buy for a specific period of 10, 20, 30 or more years, hence the name.  Term Insurance with Return of Premium- A term insurance plan is amongst the types of life insurance policies that provides a death benefit but no maturity benefit. If you live a healthy lifestyle, the probability that you will outlive the best insurance policy in India you have bought also increases.
 Unit Linked Insurance Plan (ULIP)- You may face a dilemma in life about choosing between any of the two options investment or insurance. A ULIP is one of the types of life insurance policies in India that fulfil both these aspects. Amongst different types of life insurance, it is the one that offers life cover along with investment opportunities.  Endowment Policy- Endowment policies are one of the types of life insurance policies that provide you with the combined benefit of life insurance and savings. Along with giving you the life cover, these types of life insurance help you save money regularly over a period to get a lump sum at maturity.
 Money back Policy- The purpose of investing in the insurance policy in India for your loved ones can be to create wealth over an extended period. However, most of the types of life insurance do not provide any provision to get funds before their tenure ends. It is where a money back policy plays a vital role in solving the problem of liquidity.  Whole Life Insurance- As a life insurance policyholder, you get the benefits depending on the types of life insurance policies you have chosen. What distinguishes a whole life insurance plan from other life insurance types is that it provides insurance coverage to the insured for the entire life, up to 100 years of age.
PERSONS ENTITLED TO GET LIFE INSURANCE  Payee - In the contract of life insurance, the policyholder will not always be the payee but it is the person whose name is entered in the benefits schedule of the policy and who receives the benefits of payment of scheme who is also known as the payee.  Assured himself - In the Life insurance contract, life Assured himself in case of policy on own life for living benefit claims if in the life insurance contract, life insured services to the full term, then basic sum assured is payable to him only.  Assignee or assignment - The expression assignment literally means transfer. the insurance act lays down the mode of assignment and transfer of life insurance policy.
 Nominee - Nomination is governed by Section 39 of the Insurance Act 1938. According to Section 39(1) of the said act the holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.  Legal heirs - The claim is usually payable to nominee/assignee or the legal heirs as the case may be.  Appointee - Appointee is entitled to payment of life insurance contract.
CASE STUDY Life Insurance Corporation Of India vs Escorts Ltd. & Ors AIR 1985 SCR 1370 FACTS  The accident claim benefit as per the terms of the insurance policy was payable only if the policy was in force on the date of the accident.  In this case, the policy had lapsed at the time of accident and the premium was sought to be paid three days after occurrence of accident.
 However, the complainant contended that the premium was paid along with late fee charges and therefore, the policy had stood revived before the death of the complainant's husband.  Punjab National Bank, the designated bank of Mr. Swaraj Paul's companies did appear before us but their appearance was of no help to the court. ARGUMENTS OF PETITIONER  Premium was paid along with late fee charges which should not be held as a normal practice.  The policy had lapsed at the time of accident.  premium was sought to be paid three days after occurrence of accident.
ARGUMENTS OF RESPONDANT  Premium was paid along with late fee charges  The policy had stood revived before the death of the complainant's husband. DECISION OF THE COURT  In a contract of insurance, there is requirement of uberrimae fides i.e. good faith on the part of the insured.  Upon issuance of the insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of the risks covered by the insurance policy.  Terms of insurance policy to be strictly construed as it isn’t permissible to rewrite contract while interpreting terms of the Policy.
SUGGESTIONS  Insurance companies should explicitly give breakup of premium amount – expense ratio, mortality charges and investment.  Only experts could gauge the performance of insurance policies. However, if the recommendation of the committee goes through, even a lay person will be able to assess the performance.  Apart from this, the committee has recommended benchmarking of mortality costs against the mortality tables created by independent actuarial firms.
 Another key recommendation is on surrender value. The committee has recommended that insurance companies should pay reasonable amount to policyholders after deducting costs and charges on surrendering of a policy.  All charges like distribution cost, management fee and R&T charges should be clubbed under one head.
CONCLUSION  The insurance industry plays a vital role in the financial sector. The insurance companies, with their accumulated funds from premiums, invest in ways that contribute to the growth of the economy.  However, it is very evident that Physical is the way forward as, in spite of technological advancements, the human interface will continue to play a big role in the penetration of insurance in the country.
BIBLIOGRAPHY  BOOKS • K.C. Sharma, Principles and Practices of Life Insurance in India- (New Delhi: Raj Publishers, 2013) • Sachin Rastogi, Principles of Insurance Law, Vol. I (New Delhi: Lexis Nexis Publications, 2021)  WEB SOURCES • https://nhrc.nic.in/press-release/important-cases-6(last visited on 14th June, 2026) • https://nhrc.nic.in/sites/default/files/NHRCindia.pdf(last visited on 15th June, 2026)
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