This document discusses the basics of life insurance principles in India. It explains that a life insurance policy is a legal contract that requires utmost good faith between the insurer and insured. The insured must disclose all material facts fully and accurately. If any material facts are found to be misrepresented or not disclosed within two years, the insurer can declare the policy null and void. To take a policy, the insured must have an insurable interest, which is a monetary interest, in the subject being insured. The principles of indemnity and risk management also apply to insurance contracts.

1. Basics of Insurance

2. Principles of Life Insurance

3. The Indian Contract Act 1872A contract is an agreement between two or more parties to do or to abstain from doing an act and which is intended to create a legally binding relationship

4. Is Life Insurance a Legal Contract?Intention is legalProposer offers-insurer acceptsPremium is considerationInsured must be major with sound mind-capacity to contractInsured and Insurer are in agreement –of same mind and free consentYes, since all essentials of valid contract are present

5. Principles of Life InsuranceInsurance Contract is based on Fair Play

6. Utmost Good FaithA Positive Duty to voluntarily disclose, accurately and fully, all facts material to risk being proposed, whether requested or not

7. What is a material FactWhich InfluencesThe Mind of a Prudent UnderwriterAny Fact or CircumstanceIn determining whether to take the riskIn Fixing the premium

8. Materials facts that need not to be disclosedFacts Of Common KnowledgeFacts Of LawNeed not beMaterial FactsDisclosedFacts Which Lessen RiskFacts that can be discoveredWith reasonable diligence

9. Breach Of Utmost Good FaithBreach Of Utmost Good FaithMisrepresentationNon-Disclosure

10. Section 45 of the Insurance Act,1938PolicyStart Date2 yearsIf Material Facts discovered within2 years of the policy then the insurer can declare the policy null and voidThe policy cannot be called in question after 2 years, on the grounds of inaccurate or false statement unless it is proved to be material and fraudulent.

11. What is Insurable Interest ?Recognized in Law and gives Legal Right to a personRelationship with subject MatterTo insure that Subject MatterInsurable Interest is the monetary interest

12. What is Insurable Interest ?Insurable Interest is not defined in Insurance Act 1938If No Insurable Interest .A contract is a Wagering Contract which is voidSection 30Indian Contract Act 1872Insurable Interest is a Legal Pre Requisite

13. Who have insurable interest in each otherAny person in himselfHusband and wife in each otherCreditor on Debtor(To the Extent of Outstanding Mortgage with Interest)Surety on Principal(To the extent of Debt)Partners in businessEmployer on its employeesParents in Lives of their Minor Children

14. When do these principles apply?Insurable Interest interest is required at the time of inception of the contractUtmost Good Faith is required Throughout the contract

15. Principle Of IndemnityInsurance is meant to compensate the lossesThe Mechanism of Insurance cannot be used to make profitsAmount of claim cannot exceed the amount of loss incurredInsurance makes good the lossIn Life Insurance, insurable interest on own life is unlimited hence Principle of indeminity does not apply but it does apply in General Insurance

16. Risk ManagementAvoidanceTransferRisk can Be managedRetention

17. Risks ManagementYou can avoid accidents by driving safelyAvoidanceYou have your own resources to take care of needs; (savings for rainy days)RetentionBuying insurance; transfer your risk to insurerTransfer

18. Classification of Needs Protection of the standard of living of family incase of early deathFuture Expenses eg. Children EducationIncome incase of Retirement or DisabilityHelps by facilitating borrowing

19. Key LearningsLife Insurance contract is also a legal contractThe proposer must declare all the facts properly in utmost good faithProposal Form is the basis of ContractSection 45 of Indian Insurance Act, stipulates that a policy cannot be called for question after 2 yearsInsurable Interest is a legal pre-requisite

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