LIFE INSURANCE (INCLUDING CONCEPT OF INSURANCE)

Concept of Insurance

Insurance is a contract or arrangement where one party (the insurer) agrees to compensate another party
(the insured) for loss, damage, or injury to something of value in exchange for a premium.

It is a contract where:

• One party (the insurer) agrees to compensate another (the insured) for specific potential losses in
exchange for a premium.

Key Definitions:

• J.B. Maclean: “Insurance is a method of spreading over a large number of persons a possible financial
loss too serious to be conveniently borne by an individual.”
• Riegel and Miller: “It is a social device combining uncertain risks of individuals into a group, with small
periodic contributions providing a fund to reimburse those suffering losses.”

Primary Function of Insurance:

The core function is risk transfer. By paying a premium, individuals trade uncertain future losses for
certain current expenses. Though risks remain, the financial impact becomes predictable and
manageable.

Key Features:

• Contract of Indemnity: The insured is compensated to the extent of loss, not more.
• Utmost Good Faith: Both parties must disclose all relevant facts truthfully.
• Risk Management Tool: Protects the economic value of assets and human life.
• Types of Insurance: Includes life, health, fire, marine, vehicle, etc.
Why Insurance is Needed:

• Assets: Protects physical assets like cars, homes, etc., from damage or loss.
• Business: Covers losses due to accidents or disasters affecting operations.
• Life: Provides financial support to family in case of the death or disability of the breadwinner.
• Pooling of Risks: Premiums collected from many policyholders are used to pay losses suffered by a
few.

Evolution of Insurance:

Insurance has been around for a very long time. In the early days, people helped each other during tough
times like accidents, illnesses, or losses. This was the basic idea of insurance — sharing risks and losses.

• Ancient Times: Traders and merchants faced dangers while transporting goods by sea. To protect
themselves, they started pooling money. If any ship got damaged or goods were lost, the pooled money
helped cover the loss. This was the earliest form of marine insurance.
• Middle Ages: In Europe, special groups called guilds were formed. They collected money from their
members and helped those who suffered losses due to fire, death, or other misfortunes. This was
similar to today’s life and property insurance.
• 17th Century: Modern insurance took shape in England. The Great Fire of London in 1666 destroyed
thousands of homes. After this, fire insurance started. At the same time, Lloyd’s of London became
famous for marine insurance.
• 18th-19th Century: Life insurance and health insurance became more common. Slowly, insurance
spread to other countries, including India.
• In India: Insurance started during British rule. In 1818, Oriental Life Insurance Company was the first
to start in India. Later, the Life Insurance Corporation (LIC) was formed in 1956, which became very
popular.
• Today: Many private companies are also offering insurance. Now, there are different types of insurance
like health, life, vehicle, home, travel, crop insurance, and many more.
Life Insurance:

• It emerged in 16th century England, with the first recorded policy in 1653.
• Initially linked to annuities and marine insurance practices.

Historical View of Life Insurance in India:

Life Insurance in India has a long history that started during British rule. Here’s how it evolved:

1. Early Beginning (1818 – 1900):

• The first life insurance company in India was the Oriental Life Insurance Company, started in 1818
in Kolkata.
• In the beginning, life insurance was mostly for British people living in India. Indians were often charged
higher premiums.
• After that, other companies like Bombay Life Assurance Company (1870) came up, which was the
first Indian life insurance company covering Indian lives.

2. Growth Period (1900 – 1938):

• Many new Indian insurance companies started, like Hindustan Insurance Society and Bharat
Insurance Company.
• However, there was no proper regulation or control, leading to frauds and failures.

3. Regulation Era (1938):

• To control unfair practices, the Insurance Act, 1938 was passed.

• This was the first law to regulate insurance businesses in India, making it more systematic and
trustworthy.

4. Nationalization of Life Insurance (1956):

• After independence, the government decided to protect the public’s interest.

• In 1956, 245 private life insurance companies were merged to form the Life Insurance Corporation
of India (LIC).
• LIC became the only life insurance company in India, run by the government. It became very popular
because people trusted the government.
5. Liberalization & Entry of Private Players (2000 onwards):

• In 2000, the insurance sector was opened to private companies and foreign investments.
• The Insurance Regulatory and Development Authority of India (IRDAI) was set up to regulate the
industry.
• Many private life insurance companies like HDFC Life, ICICI Prudential, SBI Life, Max Life entered
the market.

Regulations Governing/Affecting Life Insurance Business in India

The following Acts govern/regulate the life insurance business in India:
1. LIC Act, 1956.
2. Amendments to LIC Act.

introduction to Life Insurance

Life Insurance is one of the most popular and significant forms of insurance, designed to protect human
life against uncertainties. Since life is unpredictable and people may face premature death, accidents,
disabilities, or financial challenges in old age, life insurance acts as a financial shield.

Purpose of Life Insurance:

Life insurance serves a dual purpose:

• Protection: Provides financial support to the insured or their family in case of an unfortunate event like
death or disability.
• Investment: Acts as a long-term savings tool, offering returns or maturity benefits.

Nature of the Life Insurance Contract:

Life insurance is a contract where the insurer promises to pay a specified sum:

• On the occurrence of the insured event (death, disability, etc.)

• On the maturity date
• At periodic intervals, if specified
It is often called a civilized world's solution to the financial problems caused by death or old age. Life
insurance ensures:

• Security for dependents in case of premature death

• Financial support during old age when regular income sources may stop

Meaning and Nature of Life Insurance

Life Insurance is based on two fundamental elements:

1. Death Cover
2. Survival Benefits

1. Death Cover:

If the insured person dies within the specified policy period, the insurance company pays the promised
amount (sum assured) to the insured’s family or nominee. This provides financial support during a difficult
time.

2. Survival Benefits:

If the insured survives the policy period, the insurance company pays the maturity amount to the insured.
This acts as a form of savings or investment.

Key Nature of Life Insurance:

• Life insurance does not prevent death but reduces the financial burden on the family caused by the
loss of the earning member.
• It offers both risk coverage and investment benefits.
• Life insurance provides peace of mind by securing the future of dependents.
Definitions of Life Insurance

Insurance Act, 1938:

"Life Insurance business means the business of effecting contracts of insurance upon human life,
including any contract whereby the payment of money is assured on death (except death by accident only)
or the happening of any contingency dependent upon human life and any contract which is subject to
payment of premiums for a term dependent on human life."

J.H. Magee:

"Life insurance contract embodies an agreement in which, broadly stated, the insurer undertakes to pay a
stipulated sum of money upon the death of the insured or at some designated time to a designated
beneficiary."

R.S. Sharma:

"Life insurance contract may be defined as an agreement whereby the insurer, in consideration of a
premium paid either in lump sum or in periodical installments, undertakes to pay an annuity or a certain
sum of money either on the death of the insured or on the expiry of a certain number of years."

General Definition:

"A contract of life insurance is one in which one party agrees to pay a given sum of money upon the
happening of a particular event contingent upon the duration of human life, in consideration of the
immediate payment of a smaller sum or certain equivalent periodical payments by another."

Nature of Life Insurance

The analysis of various definitions explains the nature of life insurance as follows:
1. Life Insurance is a Contract

Life insurance is a legal contract between two parties — the insurer and the insured. In exchange for a
premium, the insurer promises to pay a certain sum either on the death of the insured or, if the insured
survives, the accumulated amount (premium + interest + bonus).

2. Cooperative Device - Life insurance is based on cooperation and mutual help — "all for one and one
for all." Many individuals facing similar risks contribute small premiums to create a common fund. This
fund compensates the insured (or their family) upon the occurrence of the insured event, promoting social
welfare.
3. Large Number of Persons - The principle of life insurance depends on participation from a large number
of insured individuals. The larger the group, the easier it becomes to spread the risk and make payouts
sustainable.

4. Sharing of Risk - Life insurance is a social and economic tool that spreads financial loss due to
uncertain events like death, disability, or illness. Everyone contributes (through premiums), and the loss
is shared, providing relief to the affected family.

5. Uncertainty - Life insurance covers uncertain events. Although death is certain, its timing is
unpredictable. This uncertainty makes life insurance a necessary legal contract.

6. Payment of Claim - In life insurance, the insured event (death or policy maturity) is certain to happen.
The insurer must pay the sum assured either on the insured's death or at the end of the policy term. If death
occurs before maturity, the nominee or legal heir receives the payout.

7. Insurable Interest – Insurable interest refers to the financial or emotional interest in the continued life
of the insured. It must exist at the time of taking the policy. Relations like husband-wife, parents-children,
business partners, creditors-debtors, and trustees can have an insurable interest.

8. Not a Contract of Indemnity - Life insurance is not a contract of indemnity because the financial loss
due to death cannot be measured. Unlike other insurance types, it does not aim to restore actual loss but
pays the agreed sum. The insured can choose any sum assured as it is not based on actual loss.

9. Protection to Family - The core purpose of life insurance is to provide financial security to the insured’s
family in case of premature death. It safeguards against economic hardship due to events like death,
disability, or old age.

10. Life Insurance is Not Charity, but Business - Life insurance is a commercial business. The company
collects premiums in return for providing financial protection. It is not charity because charity involves
giving without expecting a return, whereas insurance involves mutual consideration.
11. Investment of Savings - Life insurance uniquely combines protection and investment. While the
primary goal is risk coverage, it also allows individuals to save and build a financial corpus. The savings
help meet future needs like retirement, children's education, or other unforeseen expenses.

Pure Life Insurance cum Investment Plans

Pure life insurance plans that also serve as investment vehicles are typically referred to as Endowment
Plans. These traditional insurance policies combine life coverage with a savings component, ensuring that
policyholders receive a lump sum either upon death or at the policy's maturity, whichever comes first.

Endowment Policy

Meaning:

A combination of insurance and savings where the sum assured is paid either on death or survival till
maturity.

• Key Features of Endowment Plans:

• Fixed Policy Term:
The policyholder selects a fixed policy term at the time of purchasing the plan.
• Dual Benefit – Protection & Savings:
Endowment plans offer both life insurance coverage and savings. They provide financial protection to
the family in case of the policyholder's death and help accumulate wealth over time.
• Maturity Benefit:
If the insured survives till the end of the policy term, a lump sum amount (sum assured + bonuses, if
any) is paid, which can be used for future financial goals like children’s education, marriage, or
retirement.
• Death Benefit:
In case the policyholder dies during the policy term, the nominee receives the sum assured along
with accrued bonuses, ensuring financial security for the family.
• Higher Premium Due to Savings Element:
Premiums are generally higher than term life plans because they also include a savings component.
• Bonuses (If With-Profits Plan):
Many endowment plans participate in the insurer's profits and provide additional bonuses such as
reversionary bonus and terminal bonus, which enhance both maturity and death benefits.
• With or Without Profit Options:
The policy can be with profits (eligible for bonuses) or without profits (no bonus but lower premium).
• Paid-up Value after 3 Years:
If premiums for at least three years are paid and the policyholder stops paying further premiums, the
policy does not lapse but continues as a reduced paid-up policy with lesser benefits.
• No Loan Facility:
Generally, endowment plans do not offer a loan facility, unlike some other life insurance policies.

Advantages:

• Financial Discipline: Regular premium payments promote a disciplined savings habit.

• Risk-Free Returns: As these plans are not linked to market performance, they offer assured returns,
making them suitable for individuals with a low-risk appetite.
• Tax Benefits: Premiums paid, and the payouts received often qualify for tax exemptions, subject to
prevailing tax laws.

Considerations:

• Lower Returns: Compared to market-linked instruments, the returns might be modest.

• Liquidity Constraints: Early withdrawals can attract penalties and surrender values in the initial years
might be low.

For instance, the Life Insurance Corporation of India (LIC) offers various endowment plans tailored to
different financial needs.

Liferay DXP
Similarly, private insurers like Bajaj Allianz provide endowment policies with features catering to diverse
customer requirements.

Bajaj Allianz Life

When considering such plans, it's essential to assess your financial goals, risk tolerance, and investment
horizon to ensure alignment with your long-term objectives.
Unit Linked Insurance Plans (ULIPs)

Meaning:

• ULIP is a hybrid product that combines insurance protection and investment.

• Part of the premium provides life cover; the rest is invested in capital markets (stocks, bonds, mutual
funds).
• Returns depend on market performance. The investment risk is borne by the policyholder.
• It offers both protection and potential market-linked growth.

Key Features of ULIPs:

1. Hybrid Product: Mix of insurance and mutual fund investment.

2. Flexibility: Choose sum assured, premium amount, payment mode, fund types, and switch funds.
3. Tax Benefits: Eligible for tax deduction under Section 80C; maturity proceeds are tax-free.
4. Transparency: Clear information on charges and fund allocation.
5. Liquidity: Partial withdrawal allowed after 5 years (lock-in).
6. Lock-in Period: Minimum 5 years lock-in.
7. Fund Allocation: Premium split between market investment and insurance cover.

Merits / Advantages of ULIPs:

1. Multiple Benefits: Risk cover + investment + potential market returns.

2. Saving Habit: Encourages disciplined, regular savings.
3. Risk Diversification: Spreads investment risk over many investors.
4. Flexibility: Change plan, top-up premiums, switch funds anytime.
5. Partial Withdrawal: Available after lock-in period for emergencies.
6. Tax Benefits: Both on investment and maturity.
7. Market-linked Returns: Potential higher returns through equity exposure.
8. Mortality Cover: Provides death benefit if the policyholder dies.
9. Good for Long-Term Investment: Best suited for long-term financial goals.

Demerits / Disadvantages of ULIPs:

1. Lower Insurance Cover: Provides less life cover compared to traditional policies.
2. Expensive: High charges (agent commission, mortality, admin charges).
3. Lower Returns: Compared to pure mutual funds or direct market investments.
4. Not for the Short-Term: Benefits are significant only in the long run.
5. Risky: Investment returns depend on market performance.
6. No Loan Facility: Policy loans not available.
7. Complexity: Complicated terms — hard for common people to understand.

IRDA (Insurance Regulatory and Development Authority) Guidelines:

1. ULIPs must be structured like life insurance products.

2. Minimum policy term: 5 years.
3. For single premium plans: Death benefit = 125% of premium.
4. For regular premium plans: Death benefit = 5× annual premium or (½ annual premium × term) —
whichever is higher.
5. Investment Rule: 75% in approved securities, 25% in others

Procedure of Taking a Life Insurance Policy

A person willing to buy a life insurance policy must follow certain steps as prescribed by the insurance
company. The major stages are:

1. Selection of Insurance Company

• Choose from government-owned LIC or private players like HDFC Life, ICICI Prudential, Max Life, SBI
Life, Bajaj Allianz, TATA AIG, etc.
• Compare products, benefits, and premium rates.

2. Filling the Proposal Form

• Obtain the form (free from the company/agent or online).

• Provide accurate information with utmost good faith. False details can void the contract.
• Key information required:
o Personal details (name, DOB, address, occupation, income)
o Nominee details
o Health and family medical history
o Past insurance policies
o Habits like smoking, drinking
o For females: additional details like pregnancies, abortions, menstrual cycle

3. Declaration by the Proposer

• Declare that all details provided are true.

• Agree to allow the insurer to verify health or employment records.
• Agree to inform the insurer if any significant change occurs before the first premium payment.

4. Care While Filling the Proposal Form

• Sign the form in the presence of a witness.

• Illiterate proposers must give a thumb impression, attested by a third party who explains the form.
• Submit age proof (Birth Certificate, Passport, School Leaving Certificate, etc.)

5. Medical Examination

• Conducted by the insurer’s approved doctor.

• Includes examination of vital organs, weight, height, BP, medical history, addictions, surgeries, etc.
• For females, additional checks for pregnancy, uterus conditions, etc.

6. Confidential Report by Agent

• The agent submits a report on the proposer’s:

o Character
o Health
o Financial condition
o Moral risk
• Helps the company decide the risk factor.

7. Scrutiny of the Proposal

• Insurer examines:
o Proposal Form
o Medical Report
o Agent’s Report
• Classify the proposal as:
o Standard (Accepted at normal rates)
o Sub-standard (Accepted with conditions or extra premium)
o Rejected (Declined due to high risk)

8. Proposal Sanction, Registration & Acceptance

• Proposer is informed of acceptance terms.

• Consent is obtained if conditions are altered.
• Proposal is registered officially.
9. Payment of Premium

• First premium payment completes the contract.

• Risk coverage starts after the first premium is paid.
• Sub-standard lives may pay higher premiums.

10. Issuance of the Policy Document

• Final written document with:

o Policy number
o Terms & Conditions
o Sum assured
o Premium details
• Acts as proof of contract, signed and sealed by the insurer.

Terms Explaining the Nature of Insurance Contract

These clarify the legal aspects of the insurance contract:

• Payment of Premium: Must be paid on time (monthly, quarterly, half-yearly, or yearly). Grace periods
apply.
• Commencement of Risk: Risk starts from the date of premium payment or policy acceptance,
whichever is later.
• Forfeiture: Policy gets canceled if premiums aren’t paid or false information is found.
• Proof of Age: Essential for premium calculation and claim settlement.
• Nomination (Sec 39): Insured nominates a person to receive the claim amount on their death.
Nomination can be updated or changed.
• Assignment (Sec 38): Ownership rights of the policy can be transferred to another person.
• Incontestable Clause (Sec 45): After 2 years, the policy cannot be challenged for misstatements
unless proven fraudulent.
2. Restrictive Conditions (Limiting Scope of Insurance)

These limit certain coverages:

• Suicide Clause: If suicide occurs within one year, no claim is paid. Third-party rights may remain
protected.
• Hazardous Occupation: Extra premiums charged for risky jobs. Change of occupation must be
informed.
• Travel, Residence, and Occupation: Generally, no restriction, except for hazardous occupations.
• War and Air-Flight Risk: War risk generally covered; air-travel risk covered with extra premium.

3. Privileges Adding to Insurance Benefits

These provide flexibility and benefits to policyholders:

• Days of Grace: 15 days (monthly) or 30 days (other modes) after due date to pay premium without
policy lapse.
• Revival of Lapsed Policy: Can revive within 5 years by paying overdue premiums with interest.
• Non-Forfeiture: If premiums for 3 years are paid, the policy becomes paid-up instead of lapsing.
• Paid-Up Value: Reduced sum assured if premiums stop after 3 years. Bonus added.
o Formula: (No. of premiums paid / Total premiums payable) × Sum Assured
• Surrender Value: If the policyholder stops the policy after 3 years, they can get a surrender value
(minimum 30% of premiums paid, excluding the first year and extra premiums).

Nomination (Section 39 of Insurance Act, 1938)

➔ Meaning:

Nomination means appointing a person (nominee) to receive the policy amount (Sum Assured) if the
policyholder dies during the policy term.
➔ Key Points:

• The nominee can be wife, children, parents, or any trusted person.

• It can be done at the time of taking the policy or later by endorsement on the policy document.
• Nomination can be changed or updated anytime before maturity.
• Nomination does not give ownership rights—the nominee only receives the amount on behalf of
legal heirs (unless the nominee is also a legal heir).
• If the nominee dies before the policyholder, the nomination becomes invalid.

2. Assignment (Section 38 of Insurance Act, 1938)

➔ Meaning:

Assignment means transferring the rights of the policy from the policyholder (assignor) to another
person (assignee).

➔ Key Points:

• The assignee gets full rights over the policy (including claiming the maturity or death benefit).
• Assignment is usually done for:
o Loan purposes (assigning the policy to a bank as collateral)
o Gift to someone
• Assignment can be absolute (permanent transfer) or conditional (revocable on fulfilling a
condition).
• Once assigned, the original policyholder loses all rights over the policy.
3. Suicide Clause

➔ Meaning:

This clause restricts the payment of the sum assured if the policyholder commits suicide within a
specified period (usually 1 year from the policy start date).

➔ Key Points:

• If suicide happens within 1 year, the insurance company rejects the full claim but may refund the
premium paid (without interest).
• After the 1-year period, the claim is generally payable even if the cause of death is suicide.
• The purpose of this clause is to prevent people from taking policies with the intent of
committing suicide for financial gain.

4. Felo de se (Latin term meaning "Felon of Himself")

➔ Meaning:

"Felo de se" refers to a person who commits suicide intentionally. Historically, suicide was considered
a criminal act.

➔ In Life Insurance:

• Earlier, if a death was declared as felo de se, insurers did not pay the claim because it was seen
as an illegal act.
• Modern practice: Suicide is no longer treated as a crime, but the suicide clause governs the claim
payment.
• After the suicide clause period (usually 1 year), death due to suicide is covered.

Term Meaning Impact on Policy

 Nomination Appointing someone to receive the claim Nominee receives money; doesn’t own the
amount policy
Assignment Transferring ownership of the policy Assignee gets full rights
Suicide Excludes suicide claims within 1 year Claim rejected (premium refunded)
Clause
Felo de se Death by own intentional act (suicide) Covered after 1 year, governed by suicide
clause

Settlement of Claims

Meaning:
Settlement of claim means paying the policy amount by the insurance company to the rightful person,
which completes the life insurance contract.
It is the most important after-sale service and shows how efficient an insurance company is.

Types of Life Insurance Claims:

1. Maturity Claim / Survival Claim:

When the policyholder survives till the policy term ends, the policy money is paid to the policyholder or
assignee.

➔ Procedure:

1. Intimation by LIC: LIC informs the policyholder one month before the maturity date.
2. Submission of Documents: The policyholder submits:
a. Original Policy document
b. Discharge form
c. Stamped receipt
d. Proof of age (if not given earlier)
3. Payment: LIC pays the maturity amount (usually via cheque) on the maturity date.

Note: Nominee is not involved in maturity claims unless the policyholder dies before maturity.

2. Death Claim / Pre-Mature Claim:

If the policyholder dies during the policy term, the policy money is paid to:

• Nominee, or
• Assignee (if policy assigned), or
• Legal heirs (if no nomination/assignment)

➔ Procedure:

1. Death Intimation:
Nominee/Assignee informs LIC about the death with:
a. Policy number
b. Date & cause of death
c. Relationship with the deceased
d. Submits policy bond and assignment deed (if any)
2. Proof of Death Submission:
The following documents are submitted:
a. Claimant’s Statement – Relationship, death details
b. Medical Attendant’s Certificate – Cause of death, history of illness
c. Certificate of Burial/Cremation – Certified by a responsible person present during
burial/cremation
d. Certificate of Identity – By a person of good character, unrelated to the claimant
e. Certificate by Employer – For employed persons, details of service and death
f. Police Inquest Report/ Post-Mortem Report (if unnatural death)
 3. Agent’s Confidential Report:
LIC’s agent confirms the death details and verifies claim authenticity.
4. Proof of Age:
If age was not verified earlier, documents like Birth Certificate, School Certificate, Service Book,
etc., are submitted.
5. Proof of Title (if no nomination/assignment):
a. Will/Probate
b. Succession Certificate
c. Letter of Administration

If there’s no nominee or assignment, legal proof is necessary to identify the rightful claimant.

6. Discharge Form:
After verification, LIC gives a discharge form to be filled in and signed by the claimant.
7. Payment:
LIC issues payment through crossed cheque or Money Order (M.O.), but never in cash.

🔎 Important Point:

If the death occurs within 2 years of revival (based on medical declaration), LIC conducts a strict inquiry
into the cause of death.

Type of Who Gets Paid Main Documents Required

Claim
Maturity Policyholder / Original policy, Discharge form, Age proof
Claim Assignee
 Death Nominee / Death proof, Claimant’s statement, medical report, Employer
Claim Assignee / Legal certificate, Proof of age, Legal title (if required)
heir
Payment Crossed Cheque Discharge Form signed by claimant
Mode / M.O.

SECTIONS

Section 45 – No Policy Called in Question After 3 Years

1. Protection After 3 Years

• A life insurance policy cannot be questioned on any ground (misstatement, fraud, etc.) after 3
years from:
o Policy issue date,
o Date of risk commencement,
o Date of revival,
o Date of rider addition — whichever is later.

2. Questioning Within 3 Years – Only on Grounds of Fraud

• Within the first 3 years, the insurer can question the policy only for fraud.
• If the insurer finds fraud, they must inform the policyholder/nominee in writing with reasons and
proof.

3. What is Considered Fraud?

Fraud includes:

• Lying about facts you know are false.

• Hiding important facts knowingly.
• Any act done to deceive the insurer.
• Any act declared fraudulent by law.

Mere silence is not fraud unless there was a duty to speak or silence equals lying.
4. Exception – No Repudiation if Misstatement is Unintentional

• Even if there’s fraud, the insurer cannot reject the policy if the policyholder proves:
o The mistake was made honestly and without intent to cheat.
o The insurer knew the fact already.
• If the policyholder has died, the nominee must prove this.

5. Questioning on Medical Grounds Within 3 Years

• Insurer may cancel the policy within 3 years for incorrect or hidden health-related facts affecting
life expectancy.
• They must:
o Give written reasons to the policyholder or nominee.
o Refund the premiums paid (if it’s not fraud) within 90 days of cancellation.

6. Age Proof

• Insurers can ask for proof of age anytime.

• Correcting the age record is not considered questioning the policy.

Section 38 - Assignment and Transfer of Insurance Policies

1. How Assignment/Transfer is Done:

• A life insurance policy can be transferred or assigned (fully or partially) by:

o Writing an endorsement on the policy OR
o Creating a separate signed document.
• Must be signed by the policyholder (assignor) or their authorized agent and witnessed.
• Must clearly mention:
o Reason for transfer,
o Details of the new owner (assignee),
o Terms of the assignment.
2. Can the Insurer Refuse?

• Yes, the insurer can refuse the assignment if:

o It is not genuine (not bona fide),
o It is not in the policyholder’s or public interest,
o It is intended for trading in policies.
• If refused, reasons must be recorded and shared with the policyholder within 30 days.

3. Challenging Refusal:

• If unhappy with the insurer’s refusal, the policyholder can appeal to the Insurance Regulatory
Authority within 30 days.

4. When Assignment Becomes Effective:

• The assignment is complete once signed and witnessed.

• But the insurer is bound only when:
o A written notice of assignment (with a copy of the assignment document) is given to the
insurer.
o Notice must be sent to the branch servicing the policy.

5. Priority of Claims:

• The date of notice receipt by the insurer decides priority if multiple people claim rights under the
policy.
• If disputes arise, the Authority will decide.

6. Insurer’s Duty After Receiving Notice:

• Record the assignment details.

• Provide acknowledgement (proof of receipt) if requested.
• From the notice date, the insurer recognizes the assignee as the new policy owner.
7. Assignee’s Rights:

• The assignee can:

o Claim policy benefits,
o Take a loan on the policy,
o Surrender the policy,
o File a case related to the policy — without needing the original policyholder.

8. Absolute vs Conditional Assignment:

• By default, assignments are treated as absolute (full ownership transfer).

• But, if clearly mentioned, an assignment can be conditional, like:
o If the assignee dies before the insured, the policy returns to the original policyholder.
o If the insured survives the policy term, the benefits go back to the policyholder/nominee.
• A conditional assignee cannot:
o Take a loan or
o Surrender the policy.

9. Partial Assignment:

• If only part of the policy is assigned:

o The insurer’s liability is limited to that part.
o The remaining portion cannot be assigned again.

Section 39 - Nomination by Policyholder

1. Right to Nominate:

• The policyholder can nominate one or more people to receive the policy money if the policyholder
dies before maturity.
• Nomination can be done:
o At the time of buying the policy or
o Any time before maturity of the policy.
2. Minor as Nominee:

• If a nominee is a minor, the policyholder can appoint a guardian to receive the money on behalf of the
minor.

3. How to Nominate/Change Nomination:

• Nomination should be:

o Written in the policy or
o Made through a separate endorsement and informed the insurer.
• The policyholder can cancel or change the nomination any time before maturity by:
o Another endorsement or
o A Will.
• The insurer is not liable if payment is made to the registered nominee unless the change/cancellation
is properly notified.

4. Insurer’s Duty:

• Insurer must:
o Register the nomination, cancellation, or change,
o Acknowledge in writing (may charge a small fee).

5. Impact of Assignment/Loan on Nomination:

• Transfer/Assignment of the policy automatically cancels the nomination.

• Exceptions where nomination is not canceled:
o If the policy is assigned to the insurer for a loan against its surrender value,
o If reassigned back after loan repayment.
• In these cases, the nominee’s rights are affected only to the extent of the loan.

6. If the Policy Matures Before Death:

• If the policyholder is alive when the policy matures, money goes to:
o The policyholder, or
o Heirs/legal representatives if the policyholder dies after maturity but before payment.
7. If the Nominee Dies Before or After the Policyholder:

• If the nominee dies before the policyholder — money goes to the policyholder or their legal heirs.
• If the nominee dies after the policyholder but before payment — that nominee's share goes to their
heirs or legal representatives.

8. Beneficial Rights of Certain Nominees:

• If the nominee is:

o Parents, spouse, children, or spouse and children,
o They are beneficially entitled to the policy amount unless proven otherwise.
• Creditors’ rights are protected and cannot be ignored.

9. Applicability:

• These beneficial rights apply to all policies maturing after the 2015 amendment.
• If the policyholder dies after maturity but before receiving payment, the nominee gets the money.

10. Special Case - Married Women’s Property Act (MWPA):

• If the policy falls under Section 6 of the MWPA, Section 39 doesn’t apply.
• But if the policy clearly mentions nomination under Section 39, MWPA does not apply.

Section 6 - Insurance by Husband for Benefit of Wife or Wife &

Children

1. What is this Section About?

• If a married man buys a life insurance policy on his own life and the policy clearly mentions that
it is for the benefit of his wife, or his wife and children, then:
o The policy automatically becomes a trust.
o The wife, or wife and children, will be the beneficiaries of the policy.
2. Protection from Husband’s Creditors:

• Once the policy is declared for the benefit of wife/wife & children, it:
o Cannot be controlled by the husband,
o Cannot be claimed by the husband’s creditors,
o Will not form part of the husband’s estate (property) after his death if any beneficiary is
alive.

3. Payment of the Sum Assured:

• After the policy matures (due to death of the insured husband), if no special trustee is appointed,
the insurance amount is:
o Paid to the Official Trustee of the State where the policy was taken.
o The Official Trustee holds and manages the money as per the trust mentioned in the policy.
o The Official Trustee is treated like a High Court-appointed trustee.

4. Fraud Exception:

• This protection does not apply if the policy was taken to cheat creditors.
o Creditors can still claim the amount if the policy was intended to defraud them.

5. Application to Different Communities:

• The section applies even to Hindus, Muslims, Sikhs, Jains, and Buddhists in certain areas and
periods:
o For Hindus, Muslims, Sikhs, Jains:
▪ After 31 Dec 1913 in Madras.
▪ After 1 April 1923 in other territories where the Act applied before 1959.
▪ After the Married Women’s Property (Extension) Act, 1959 in areas where it
extended from 1959.
o For Buddhists:
▪ After the 1959 Amendment in areas where the Act applies.
6. Protection of Past Court Orders:

• If any court order or judgment was passed before 1 April 1923 or before 1959 Amendment
(depending on area), it remains valid.
• This law won’t change any rights or liabilities already decided by a court before those dates.

CONCLUSION

Life insurance plays a crucial role in providing financial protection, savings, and investment opportunities.
It not only secures an individual’s future but also takes care of their family in case of untimely death. Life
insurance offers benefits like tax relief, loan facilities, accident coverage, and social security for weaker
sections. It supports economic growth by mobilizing funds for infrastructure and industrial development.
Whether for personal or group coverage, life insurance ensures peace of mind and financial stability, truly
making it an essential part of life with no substitute.