Fire and marine insurance contract, in general, are contracts of indemnity, that is, they provide for compensating the insured for loss or damage sustained. A contract of life insurance, however, forms an exception to the general rule.
A contract of life insurance is a mere contract to pay a certain sum of money on the death of a of person (or on maturity) in consideration of the payment of a certain sum of money at periodical intervals. The assured merely pays the premium to the insure in order to secure a certain sum payable to him or to his representatives in case of death. money at periodical intervals.
A life insurance contract does not resemble a contract of indemnity because the insurer does not undertake to indemnify the assured for any loss on maturity or death of the assured but promises to pay sum assured in that event. A policy of insurance on one’s own life is not an indemnity because it is merely a contract to pay a certain sum in the event of death. The assured merely pays the premium to the insurer in order to secure a certain sum payable to him or to his representatives in case of death. There is no question of indemnification in such a case, for the loss resulting from death, cannot be estimated in money. Life insurance is adopted as a means of saving; the idea of indemnity is foreign to it.
It is doubtful whether the above view can universally be applied to all kinds of life insurance. If a creditor insurers the life of his debtor, it is no more than a contract which provides a security against the chance of the debtor’s dying without repaying it. To say that such a contract is not a contract of indemnity is not reasonable.