Page 12 - IC23 life insurance application

Fundamental Principles of Life Insurance

Life insurance as a legal contract:-

A Life Insurance Policy is an evidence of contract between the policyholder and the

life insurance company. Under such a contract, the policyholder buys the right to a

certain sum of money which is payable to the beneficiary in the event of death of the

policyholder within a certain period or to the policyholder if he is alive till the end of

the period.

Life Insurance Contract, like any other ordinary Contract is governed by the Contract

Act. For example, there are two parties to the Contract - the policyholder and the

insurer. Both parties have rights and obligations. The policyholder has the right to

the claim money as stated above and has the concurrent obligation to disclose all

facts regarding his health, habit and occupation and further to pay the premium on

the due date till maturity of the policy or earlier death. On the other hand, the insurer

has the right to know all the information - complete and accurate about the

policyholder and to the premium payable and has the obligation to pay the promised

sum on the happening of the contracted event - death or maturity. The insurer has

no right to change the terms of the contract during the currency of the policy and

can't withdraw from the obligation to pay the sum assured, while the policyholder has

the right to stop payment of premium at any time, thereby losing the future benefit

under the policy contract. Life Insurance is, therefore, called unilateral contract.

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