Life insurance contract is a sort of contract which is approved by the Indian Contract Act. The essentialities of the life insurance contract are explained below.
- Offer and acceptance
- Legal relationship
- Consensus ad idem
- Competency of parties
- Free consent
- Lawful consideration
- Legal object
Offer and acceptance
In life insurance the offer and acceptance is of distinctive nature. The proposer completes the proposal form and while submitting it he remits first premium. The same may be accepted at normal rates and returns. Public is invited to take insurance policies either through a prospectus or through agents. Submission of proposal along with the premium is an offer and the dispatch of acceptance letter is the acceptance. The risk will commence when the acceptance letter is sent by the insurer. If the prospect does no pay premium at the time of submitting proposal, insurance sends a letter asking the proposer to pay the first premium without making any alteration in offer. As soon as premium is dispatched, acceptance is provided.
When the insurer desires to accept the proposal only on certain modifications, then a letter is send to the proposer or the prospect by indicating the desire of change in terms and conditions. It is an offer if the first premium was not sent along with the proposal. But it the first premium was sent along with the proposal, then it is counter offer. If the prospect accepts the terms and conditions and remits the first premium, it would be an acceptance. That means the letter sent by the insurer is not always a letter of acceptance. The letter would be an acceptance letter if the prospect remitted the first premium along with the proposal. In all other cases it would be an offer or counter offer.
The parties should intend their agreement to result in legal relations. That means all agreements which do not result in legal relations are not contracts.
Consensus ad idem
The two parties must have agreed about the subject matter of the contract at the same time and the same sense.
Competency of parties
The parties who are entering the contract must be legally competent.
Free consent of the parties:
In Life insurance both parties must know the exact nature of risk which is going to be undertaken.
All contracts must be supported by lawful consideration. Lawful consideration requires both the presence of consideration and the lawfulness of consideration. Premium being the valuable consideration must be given for starting the insurance contract. The first premium is consideration and subsequent premiums are merely conditions to contract.
The object of the legal life insurance contract is to protect oneself or own family against financial losses incurring due to the death of the insured.