Life insurance is essential for any major money earner in a family, regardless of where one works. It helps to protect the lifestyle and home of the insured’s family in the event of his untimely death. Term life insurance is the least expensive, but it has limitations on its duration, which can be specified by the insured. Whole life is more expensive, but it remains in effect for the life of the insured as long as premiums are paid on time. Life insurance is a contract between the policy holder and the insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. In return, the policy holder agrees to pay a stipulated amount (at regular intervals or in lump sums). In some countries, death expenses such as funerals are included in the premium: however, in the United States the predominant form simply specifies a lump Sum to be paid on the insured’s demise. The value for the policy owner is the ‘peace of mind’ in knowing that the death of the insured person will not result in financial hardship. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.
Life insurance is not a contract of indemnity. The undertaking on the part of the insurer is an absolute one to pay a definite sum on maturity of policy at the death or amount in installment for a fixed period or during the life.
Meaning and definition
Insurance is generally referred as life assurance. It insures the insured against the happening of certain event. The subject matter of life insurance is the life of human being. The life insurance is described as contingent contracts because the loss of life cannot be compensated and only a specified sum can only be paid if the insured dies. The insurance is not only a protection of life of individual but also an investment. Section 2 of the Indian Insurance Act 1938 has defined the life insurance as, “business of effecting contracts upon human life”.
It can be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on death of the insured or on the expiry of a fixed period. Now annuity business is also coming under the purview of life insurance. Life insurance is not a contract of indemnity.
Life insurance is defined as “a mutual agreement by which one party agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life, in consideration of the payment of a smaller sum immediately, or in periodical payments by the other party.”
It is also defined as “a contract by which insurer for a certain Sum of money or premium proportioned to the age, health, and other circumstances of the person, whose life is insured, engages that, upon the death of such person, within the period limited in the policy, insurer shall pay the sum specified in the policy according to the terms thereof.
Life insurance is a contract under which the insurer (Insurance Company) in consideration of a premium paid undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a specified period of time whichever is earlier. In case of life insurance, the payment for life insurance policy is certain.
The subject matter of insurance is life of human being. Life insurance provides risk coverage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the titleholders of the policy.
In general, life insurance is a type of coverage that pays benefits upon a person’s death or disability. In exchange for relatively small premiums paid in the present, the policy holder receives the assurance that a larger amount of money will be available in the future to help his or her beneficiaries pay debts and funeral expenses. Some forms of life insurance can also be used as a tax-deferred investment to provide funds during a person’s lifetime for retirement or everyday living expenses.
Features of life insurance
- Life insurance is an outcome of offer and acceptance. The offer is made by the insured and acceptance is done by the insurer.
- The insurance company agrees to pay a certain sum of money either on the death of the insured or on the maturity of the policy whichever is earlier.
- The insured has an obligation to pay an amount periodically up to the date of death or expiry of the period of the policy whichever is earlier.
- Life insurance is not a contract of indemnity. We cannot calculate the value of life in terms of money.
- Insurable interest must be present at the time of taking policy and which may or may not be present at the time of taking policy and which may or may not be present at the time of death of the insured.
- It is considered as the best alternative way of savings.