The document provides an introduction to various concepts in insurance including the life insurance contract, principles of insurance, utmost good faith, insurable interest, and different types of insurance policies like term insurance, whole life insurance, endowment policies, and annuities. It explains that a life insurance contract is a valid legal agreement between the insurer and insured where the insurer agrees to pay claims on the happening of an insured event in exchange for premiums paid by the insured.

1. Introduction To Insurance

2. The Indian Contract Act 1872
• A 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
An Agreement
enforceable
by Law is a
contract

3. Essentials of a Valid Contract
Two or
Free
More
Consent
Parties
fa
s o ct
ial ra
nt nt
Lawful
se o Lawful
Objectiv Es id C Consider
e
val ation
Offer &
Acceptance

4. The Life Insurance Contract
Insurer Insured
Agreement
will pay will pay
claims Premiums
On happening of insured event or
survival to a specified term

5. Is Life Insurance a Legal Contract?
• Intention is legal
• Proposer offers-insurer accepts
• Premium is consideration
• Insured must be major with sound mind-capacity to contract
• Insured and Insurer are in agreement –of same mind and free
consent
Yes, since all essentials of valid contract are present

6. Principles of Life Insurance
Utmost Insurable
good
Interest
faith
Insurance Contract is based on Fair Play

7. Insurance Contract Vs Commercial Contract
INSURANCE CONTRACT COMMERCIAL CONTRACT
• In Life Insurance proposer has all • When one buys a TV or Fridge he
the facts examines the quality/quantity
• The Insurer Knows only those • Buyer has no right to come later
facts that the proposer discloses and ask for termination of contract
• Ordinary faith is not sufficient- • Buyer Beware or Caveat Emptor
Utmost Good Faith is required applies

8. Utmost Good Faith
• A Positive Duty to voluntarily disclose,accurately and fully, all facts
material to risk being proposed, whether requested or not.

9. What is a material Fact?
The Mind of a
Which Prudent
Any Fact or Circumstance Influences Underwriter
In determining
In Fixing the whether to take
premium the risk

10. What must be disclosed?
• Facts of higher Risk
• External Factors that make the risk higher
• Any refusal/special terms imposed on previous proposals
• Existence of other policies
• Facts relating to health

11. Declaration
Proposal Form is the Basis Of Contract
If any statement/declaration by the proposer is found untrue
The Contract can be made Null and Void and
Premiums Forfeited
The Effect of declaration is to turn Representations in the proposal
form into warranties

12. Breach Of Utmost Good Faith
Breach of Utmost Good Faith
Misrepresentation Non-Disclosure

13. Section 45 of the Insurance Act,1938
Policy
Start
Date 2 years
If Material Facts discovered The policy cannot be called in question
within 2 years of the policy after 2 years, on the grounds of
then the insurer can declare inaccurate or false statement unless it is
the policy null and void proved to be material and fraudulent.

14. What is Insurable Interest ?
Insurable Interest is not defined in Insurance Act 1938
If No Insurable Interest .A contract is a
Wagering Contract which is void Section
30
Indian
Insurable Interest is a Legal Prerequisite Contrac
t Act
1872

15. Insurable Interest
•All risks are not Insurable
•Insured must suffer a loss, if the risk is not covered
•Financial interest in Subject matter of Insurance
The insured must be interested in the safety and
the well being of the subject of Insurance
He Should not benefit from loss or damage to it

16. What is Insurable Interest ?
Relationship with subject Recognized in Law and
Matter gives Legal Right to a
person
To insure that Subject Matter
Insurable Interest is the monetary interest

17. Who have insurable interest in each other
• Any person in himself
• Husband and wife in each other
• Creditor on Debtor(To the Extent of Outstanding Mortgage with
Interest)
• Surety on Principal(To the extent of Debt)
• Partners in business
• Employer on its employees
• Parents in Lives of their Minor Children

18. When do these principles apply?
• Insurable Interest interest is required at the time of entering the
contract
• Utmost Good Faith is required Throughout the contract

19. Principle Of Indemnity
• Insurance is meant to compensate the losses
• The Mechanism of Insurance cannot be used to make profits
• Amount of claim cannot exceed the amount of loss incurred
• Insurance makes good the loss
• In Life Insurance, insurable interest on own life is unlimited hence
Principle of indeminity does not apply but it does apply in General
Insurance

20. Risk Management
Avoidance
Risk can be managed Transfer
Retention

21. Classification of Needs
• Protection of the standard of living of family incase of early death
• Future Expenses eg. Children Education
• Income incase of Retirement or Disability
• Helps by facilitating borrowing

22. Case Study 1
• In a village there are 400 houses, each valued at Rs 20,000.
• Every year on an average, 4 houses get burnt, resulting into a total
loss of Rs 80,000.
Find a Solution

23. Sharing Risk
400 owners come together
and contributed Rs 200 each
Fund
Fund Size
= 400×200
= Rs 80,000

24. Sharing Risk
Risk of 4 house owners
4 00
r
ove
a d
re
Sp
Sp
re
ad
ov
e r4
00

25. Type of Risks
Risks
Pure Speculative
No prospect of gain Offers possibility of loss
or gain
Example: Fire in a Example: Investing in
building stocks

26. Type of Risks
Risks
Fundamental Particular
Affect large section Consequences are
of society comparatively
restricted
Example: Famine Example: Most insurable
risks

27. How to Manage Risk
• Avoiding Risk
• Controlling Risk
• Accepting Risk
• Transferring Risk

28. Why we need life insurance
Dependents’ Education Retirement Estate
Support Costs Income Planning

29. Insurance vs. Gambling
Insurance Gambling
Risk already exist Risk not existent. It is created.
No total loss. Entire group provides One gains at the cost of others.
for themselves.
It is based on mathematical It is highly speculative.
prediction.

30. Basic Life Insurance Policy

31. Term Insurance
• Provides a death benefit if the insured dies during a
specified period
150,000
benefit
Death
100,000
50,000
1 2 3 30
No of years the policy is in force

32. Term Insurance
In case of death during the policy
term, the SA = 100,000 is paid
1 2 3 30
No of years the policy is in force

33. Whole Life Policy
Whole life insurance provides insurance coverage
throughout the insured’s lifetime.
Policy purchased at age 30
150,000
Benefit
Death
100,000
50,000
30 40 50 60 70 100 or death
Insured’s Age

34. Types of Whole Life Policies
Regular - Premium Policies Limited Payment Policies
Premiums are payable Premiums are payable
until the insured’s death until some stated period
expires
Date of Insured’s Date of End of
policy death policy specified
purchase purchase period

35. Endowment Policies
• Endowment policies provide insurance coverage for a specified
period.
• On surviving the specified period, policyholder gets the sum assured
+ bonuses.
• On death during the specified term, policyholder gets the sum
assured + bonuses.

36. Endowment Policies
Policy purchased at age 30
SA +
150,000
Benefit
Bonuses
Death
100,000
SA
50,000
30 35 40 45 50 55
Insured’s Age

37. Endowment Policies
Policy purchased at age 30
150,000 SA +
Benefit
Death
Bonuses
100,000
On death at age
50,000 45
30 35 40 45 50 55
Insured’s Age

38. Annuities
• An annuity is a series of periodic payments. In annuity contract, a
person agrees to pay to the insurer a specified capital sum in
return for a series of payments.
Periodic Payments made
Annuity benefit payment

39. Factors Affecting Annuity Benefits
• The amount of money invested
• The interest rate earned on investment
• The number & timing of annuity payments
• The time over which money grows at interest

40. How Immediate Annuity Works
You made Your annuity
lump sum payments start
payment from age 31
Age 30
Age 31

41. How Deferred Annuity works
Retirement Age 60
Deferment Period Annuity Period
Age 85
Age 30 Age 60
You pay premium Insurer pays you
while you work annuity/pensions
during your
retirement