PROJECT ON

CONDITIONS OF LIFE INSURANCE

CONTRACT

INSURANCE LAW

[Submitted as a partial fulfilment of the requirements for B.A. LL.B. (Hons.) 5 year
integrated course]

Submitted On: 14-10-2023

Supervised by - Submitted by-

Mr. Apoorv Banerjee Mr. Bhanu Pratap Singh Bhati

Faculty: Insurance Law Roll No. 101

Sem.-IX

University Five Year Law College

University of Rajasthan, Jaipur

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 DECLARATION

I, Bhanu Pratap Singh Bhati, hereby declare that this project titled “CONDITIONS OF LIFE
INSURANCE CONTRACT” is based on the original research work carried out by me under
the guidance and Supervision of Mr, Apoorv Banerjee, Faculty, University Five Year Law
College, University of Rajasthan, Jaipur.

The interpretations put forth are based on my reading and understanding of the original
texts. The books, articles and websites etc. which have been relied upon by me have been
duly acknowledged at the respective places in the text.

For the present project which I am submitting to the university, no degree or diploma has
been conferred on me before, either in this or in any other university.

Date: 14-10-2023

Signature

Bhanu Pratap Singh Bhati

Roll No – 101
Semester: IX

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 CERTIFICATE

Mr. Apoorv Banerjee Date: 14/10/2023

Faculty
University Five Year Law
College University of
Rajasthan, Jaipur.

This is to certify that Mr. Bhanu Pratap Singh Bhati, student of Semester IX, has carried out
project titled “CONDITIONS OF LIFE INSURANCE CONTRACT” under my supervision.
It is an investigation report of a minor research project. The student has completed research
work in stipulated time & according to the norms prescribed for the purpose.

Supervisor

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 ACKNOWLEDGMENT

I have written this project, “CONDITIONS OF LIFE INSURANCE CONTRACT” under the
supervision of, Mr. Apoorv Banerjee, Faculty, University Five Year Law College, University
of Rajasthan, Jaipur. His valuable suggestions herein have not only helped me immensely in
making this work but also in developing an analytical approach this work.

I am extremely grateful for the opportunity given by the Director Dr. Akhil Kumar,
University Five Year Law College to make this project and enhance my knowledge and skills
in the topic. I am grateful to librarian and library staff of the college for the support and
cooperation extended by them from time to time.

I am humbled by the support and cooperation I have got from my friends who have

enlightened me with their knowledge.

Bhanu Pratap Singh Bhati

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 TABLE OF CONTENTS

Declaration......................................................................................................(ii)

Certificate......................................................................................................(iii)

Acknowledgment…........................................................................................(iv)

Introduction

Research

Methodology

CHAPTER1

CHAPTER 2

Conclusion

Bibliography

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 INTRODUCTION

Life insurance is a contract between an insurer and a policyholder. A life insurance policy
guarantees the insurer pays a sum of money to named beneficiaries when the insured
policyholder dies, in exchange for the premiums paid by the policyholder during their
lifetime. Life insurance provides financial support to surviving dependents or other
beneficiaries after the death of an insured. Before you apply for life insurance, you should
analyze your financial situation and determine how much money would be required to
maintain your beneficiaries’ standard of living or meet the need for which you’re purchasing
a policy. Insurers evaluate each life insurance applicant on a case-by-case basis, and with
hundreds of insurers to choose from, almost anyone can find an affordable policy that at least
partially meets their needs. many life insurance companies sell multiple types and sizes of
policies, and some specialize in meeting specific needs, such as policies for people with
chronic health conditions. There are also brokers who specialize in life insurance and know
what different companies offer. Applicants can work with a broker free of charge to find the
insurance they need. This means that almost anyone can get some type of life insurance
policy if they look hard enough and are willing to pay a high enough price or accept a
perhaps less-than-ideal death benefit. Insurance is not just for the healthy and wealthy, and
because the insurance industry is much broader than many consumers realize, getting life
insurance may be possible and affordable even if previous applications have been denied or
quotes have been unaffordable. In general, the younger and healthier you are, the easier it will
be to qualify for life insurance, and the older and less healthy you are, the harder it will be.
Certain lifestyle choices, such as using tobacco or engaging in risky hobbies such as
skydiving, also make it harder to qualify or lead to higher rates. Most people use life
insurance to provide money to beneficiaries who would suffer a financial hardship upon the
insured’s death. However, for wealthy individuals, the tax advantages of life insurance,
including tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits,
can provide additional strategic opportunities.

RESEARCH METHODOLOGY

The research for this project is conducted using doctrinal method of research.The doctrinal
method of research refers to a way of conducting research which is usually thought of
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“typical legal research”. A doctrinal approach to research focus on case-law, statutes and
other legal sources. The research is conducted from books, websites and case laws.

CHAPTER 1

An insurance contract is a document representing the agreement between an insurance

company and the insured. Central to any insurance contract is the insuring agreement, which
specifies the risks that are covered, the limits of the policy, and the term of the policy.
Additionally, all insurance contracts specify:
1. conditions, which are requirements of the insured, such as paying the premium or
reporting a loss;
2. limitations, which specify the limits of the policy, such as the maximum amount that
the insurance company will pay;
3. exclusions, which specify what is not covered by the contract.
Obviously, the contents of an insurance contract depend on the type of policy, what the
insurance applicant wants, and how much he is willing to pay. The details of insurance
policies are covered in Standard Insurance Policies. This article covers what is required of
valid insurance contracts, since only valid contracts are legally enforceable. All agreements
are the contract if they are made by the free consent of the parties, competent to contract,
for a lawful consideration and with a lawful object and which are not at this moment
declared to be void”. The insurance contract involves—(A) the elements of the general
contract, and (B) the element of special contract relating to insurance.
The valid contract, according to Section 10 of the Indian Contract Act 1872, must have the
following essentialities;
1. Agreement (offer and acceptance),
2. Legal consideration,

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3. Competent to make a contract,
4. Free consent,
5. Legal object.
The special contract of life insurance involves principles:
1. Insurable Interest.
2. Utmost Good Faith.
3. Consensus ad idem (Meeting of Mind)
Insurance contracts have an additional requirement that they be in legal form. Insurance
contracts are regulated by state law, so insurance contracts must comply with these
requirements. The state may stipulate that only certain forms may be used for certain types of
insurance or that the contract must have certain provisions. Additionally, contracts must be
approved by the state insurance department before they can be used, to ensure that they
comply with regulations. If a contract lacks any of these essential elements, then it is a void
contract that will not be enforced by any court. For instance, most contracts signed by a
minor are void contracts because they are not legally competent. A voidable contract can be
nullified by a party if the other party breaches the contract, or because material information
was omitted or false in the contract. The party with the right to void can also choose to
enforce it, instead. For instance, insurance companies can often void a contract because the
applicant provided false information on the application. Thus, if someone was in an auto
accident, and that person previously filled out the insurance application stating that he had no
speeding tickets, when, in fact, he had, then the insurance company can void the contract and
not pay the claim. Although most contracts can be oral, most are written, especially insurance
contracts, because of their complexity.

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 CHAPTER 2
Elements or Conditions of Life Insurance Contract
1. Offer and Acceptance
The offer for entering into the contract may come from the insured. The insurer may also
propose to make the contract. Whether the offer is from the side of an insurer or the side of
the insured, the main fact is acceptance. Any act that precedes it is the offer or a counter-
offer. All that preceded the offeror counter-offer is an invitation to offer. In insurance, the
publication of the prospectus, the canvassing of the agents are invitations to offer. When the
prospect (the potential policy-holder) proposes to enter the contract, it is an offer and if there
is any alteration in the offer that would be a counter-offer. If this alteration or change
(counter-offer) ill-accepted by the proposer, it would be acceptable. In the absence of a
counter-offer, the acceptance of the offer will be an acceptance by the insurer. At the
moment, the notice of acceptance is given to another party; it would be a valid acceptance.

2. Legal Consideration
The promisor to pay a fixed sum at a given contingency is the insurer who must have some
return or his promise. It need not be money only, but it must be valuable. It may be summed,
right, interest, profit or benefit Premium being the valuable consideration must be given for
starting the insurance contract. The amount of premium is not important to begin the contract.
The fact is that without payment of premium, the insurance contract cannot start.

3. Competent to make the contract

Every person is competent to contract;

1. Who is off’ is an age of majority according to the law,

2. Who is of sound mind, and
3. Who is not disqualified from contracting by any law to which he is subject?
A minor is not competent to contract. A contract by a minor is void excepting contracts for
necessaries. A minor cannot sign a contract. A person is said to be of sound mind to make a
contract if, at the time when he makes it, he is capable of understanding it and of forming a
rational judgment as to its effect upon his interests.
9 A person who is usually of unsound mind,
but, occasionally of sound mind may, make a contract when he is of sound mind. Alien
 energy, an undischarged insolvent and criminals cannot agree. A contract made by an
incompetent party/parties will be void.

4. Free Consent
Parties entering into the contract should enter into it by their free
consent. The consent will be free when it is not caused by—
(1) coercion,
(2) undue influence,
(3) fraud, or
(4) misrepresentation, or
(5) mistake.

When there is no free consent except fraud, the contract becomes voidable at the option of
the party whose consent was so caused. In the case of fraud, the contract would be void. The
proposal for free consent must sign a declaration to this effect, the person explaining the
subject matter of the proposal to the proposer must also accordingly make a written
declaration or the proposal.

5. Legal Object
To make a valid contract, the object of the agreement should be lawful. An object that is,
(i) not forbidden by law or
(ii) is not immoral, or
(iii) opposed to public policy, or
(iv) which does not defeat the provisions of any law, is lawful.

In the proposal from the object of insurance is asked which should be legal and the object
should not be concealed. If the object of insurance, like the consideration, is found to be
unlawful, the policy is void.

6. Insurable Interest
For an insurance contract to be valid, the insured must possess an insurable interest in the
subject matter of insurance. The insurable interest
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is the pecuniary interest whereby the
policy-holder is benefited by the existence of the subject-matter and is prejudiced death or
damage of the subject- matter. The essentials of a valid insurable interest are the following:
1. There must be a subject-matter to be insured.
2. The policy-holder should have a monetary relationship with the subject-matter.
3. The relationship between the policy-holders and the subject-matter should be recognized
by law. In other words, there should not be any illegal relationship between the policy-
holder and the subject-matter to be insured.
4. The financial relationship between the policy-holder and subject-matter should be such
that the policy-holder is economically benefited by the survival or existence of the subject-
matter and or will suffer economic loss at the death or existence of the subject matter.
5. The subject-matter is life in the life insurance, property, and goods in property insurance,
liability, and adventure in general insurance.

Insurable interest is essentially a pecuniary interest, i.e., the loss caused by fire
happening of the insured risk must be capable of financial valuation. No emotional or
sentimental loss, as an expectation or anxiety, would be the ground of the insurable interest.
The event insured should be one that if it happens, the party suffers financially and if it does
not happen, the party is benefited by the existence. But a mere hope or expectation, which
may be frustrated by the happening to some extent, is not an insurable interest.

7. Utmost Good Faith

The doctrine of disclosing all material facts is embodied in the important principle ‘utmost
good faith’ which applies to all forms of insurance. Both parties to the insurance contract
must agree (ad idem) at the time of the contract. There should not be any misrepresentation,
non-disclosure or fraud concerning the material. In case of insurance contract the legal
maxim ‘Caveat Emptor” (let the buyer beware) docs not prevail, where it is the regard of the
buyer to satisfy himself of the genuineness of the subject-matter and the seller is under no
obligation to supply information about it. But in the insurance contract, the seller, i.e., the
insurer will also have to disclose all the material facts. An insurance contract is a contract of
uherrimae fidei, i.e., of absolute good faith both parties to the contract must disclose all the
material facts and fully.

Material Facts
A material fact is one which affects the judgment or decision of both parties in entering into
the contract. Facts which count materially are 11
those which knowledge influences a party in
deciding whether or not to offer or to accept such risk and if the risk, is acceptable, on what
 terms and conditions the risk should be accepted. These facts have a direct bearing on the
degree of risk about the subject of insurance. In case of life insurance, the material facts or
factors affecting the risk will be age, residence, occupation, health, income, etc., and in case
of property insurance, it would make him use the design, owner, and situation of the property.

(i). Full and True Disclosure

The utmost Good Faith says that all the material facts should be disclosed in true and fill the
form. It means that the facts should be disclosed in that form in which they exist. There
should be no concealment, misrepresentation, mistake or fraud about the material facts. There
should be no false statement and no half-truth nor nay silence on the material facts.

(ii). The duty of Both the Parties

The duty to disclose the material facts lies on both the parties the insured as well as the
insurer, but in practice the assured has to be more particular, about the; observance of this
principle because it is usually in full knowledge of facts relating to the subject-matter which,
despite all effective inspections of the insurer, would not be disclosed.

(iii). Facts need not be disclosed by the insured

The following facts, however, are not required to be disclosed by the insured (0 Facts which
tend to lessen the risk.

(a). Facts of public knowledge.

(b). Facts that could be inferred from the information
disclosed.

(c). Facts waived by the insurer.

(d). Facts governed by the conditions of the policy.

8. Consensus ad idem (Meeting of Mind)

For the formation of a valid contract, both parties to contract should be of the same mind and there must
be consent arising out of common intention. The understanding between the insurer and the insured
person should be of the same thinking or mind. The reasons for taking the insurance policy should be
understandable to both the parties.
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 CONCLUSION

For the formation of a valid contract, both parties to contract should be of the same mind and
there must be consent arising out of common intention. The understanding between the
insurer and the insured person should be of the same thinking or mind. The reasons for taking
the insurance policy should be understandable to both the parties. All Insurance Contracts
except Life insurance are Contract of Indemnity. The Loss due to loss of life cannot be
measured in the term of actual loss, therefore the insurer undertakes to pay a fixed amount in
such kind of contingency. It is, therefore in the nature of Contingency Insurance. It provides
payment on a contingent event. In developing countries like India, it is very common and
popular practice to bundle together a risk coverage and savings in the form of life insurance.
Insurance is just the opposite of gambling. In gambling, a person exposes himself to the risk,
there is of losing whereas, in the insurance, the insurance is always opposed to risk. When
applying for insurance, you will find a huge range of insurance products available in the
market. If you have an insurance advisor, he or she can shop around and make sure that you
are getting adequate insurance coverage for your money. Even so, a little understanding of
insurance contracts can go a long way in making sure that your advisor's recommendations
are on track. Furthermore, there may be times when your claim is canceled because you
didn't pay attention to certain information requested by your insurance company. In this
case, a lack of knowledge and carelessness can cost you a lot. Go through your insurer's
policy features instead of signing them without delving into the fine print. If you understand
what you're reading, you'll be able to ensure that the insurance product that you are signing
up for will cover you when you need it most.

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 BIBLIOGRAPHY

● Law of Insurance by Dr. S.R. Myneni, Asian Law house, 1st Edition, 2013
● https://www.iedunote.com/insurance-contract
● https://www.investopedia.com
● https://www.investopedia.com

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