Nature of life insurance contract

Life insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period. The definition of the life insurance contract is enlarged by Section 2(ii) of the insurance act 1933 by including annuity business. Since, the life insurance contract is not an indemnity contract; 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 an amount in installment for a fixed period or during the life.

Features of life insurance contract:

(i) Nature of general contract

(ii) Insurable interest

(iii) Utmost good faith

(iV) Warranties

(v) Proximate cause

(vi) Assignment & nomination

(vii) Return of premium

(viii) Other features.

In life insurance contract the first three features are very important while the rest of them are of complementary nature.

1. Nature of general contract

Since the life insurance contract is a sort of contract it is approved by the Indian Contract Act. According to Section 2 (H) & following essentialities:

(i) Agreement (Offer & acceptance)

(ii) Competency of the parties.

(iii) Free consent of the parties, i.e., the parties must be ad idem.

(iv) Legal consideration.

(v) Legal objective.