What are Policies?

A policy of life assurance may be a “Whole Life Policy,’ which matures at the end of that life or an “Endowment Policy’ under which in consideration of certain premiums paid for a fixed terms of years at fixed intervals, the company undertakes to pay the amount covered by the policy at the end of a specified period in case the person survives that period. If, however, the person dies before the expiration of that period, the policy falls due and is payable immediately.

The premiums on the policies may be spread over the whole life of the assured in whole life policies or they may be payable for fixed term, after which payment of premiums ceases but the policy runs on till death.

This latter is known as a ‘Limited Payments Policy.’ There are also ‘Ascending Scale Policies,’ which premiums of smaller amounted payable at the start are gradually raised at agreed intervals. Where policies are effected by creditors for a short term policy on the life of his debtor has not only to pay a premium for a short term, but the premium itself is proportionately lower than that usually charged on a whole life policy.

Life Insurance corporation of India

Life assurance business was nationalised by the Government of India in 1956 and a Life Insurance Corporation was formed. The L.I.C. now has the sole monopoly of lie assurance business in India.

The administration is through the Central office in Bombay with five zonal offices each at Bombay, Calcutta, Delhi, Kanpur and Madras.

Insurable Interest

A person may assure his own life up to any extent as he is supposed to have an unlimited interest in his own life, or he may assure the lives of those dependent upon him, or through whose death he is likely to suffer pecuniary loss.

Where life assurance is affected for the benefit of a person other than the one whose life is assured, the person for whose benefit the policy is taken out should be mentioned in such a policy and the amount of assurance should not exceed the pecuniary interest of such a person in the life of the assured at the time of effecting the policy.

A wife has an insurable interest in her husband’s life and vice versa, but a parent has no insurable interest in the life of his child; nor has a child an insurable interest in the life of his parent qua parent. A creditor has an insurable interest in the life of a debtor to the extent of his claim, and on the same principle a surety can claim to have an insurable interest in the life of his principal debtor, etc.

A Proposal Form is given to the applicant containing a number of questions which he has to answer accurately; life policies also contain a clause expressly stipulating that any misstatement in the declaration, whether international or innocent, will vitiate the policy.

In case of such declaration, it has now been held that if an innocent statement is made at the time of assurance, say with regard to a person’s health after consultation with a particular medical adviser, and if the applicant thereafter during the continuance of the policy consults another medical adviser and gets to know facts to the contrary, on which he immediately reports these facts to the company, that act would not vitiate the policy. If, on the other hand, he conceals the information which is subsequently obtained, it may have the effect of invalidating the insurance.

Assignment

A life assurance policy van be assigned with or without consideration by an endorsement on the policy itself or by a separate instrument, signed and attested by at least one witness. It is, however, necessary to give written notice to the assurance company of such an assignment to make the assignee’s title effective against the company, otherwise if the company makes and payment to the assigner after the assignment, without the knowledge of the assignee, the company would be protected.

Proof of Death

In the case of policies payable at death, the death of the insured has to be proved. Death is presumed where it is shown that a person, who went abroad or disappeared, has not been heard of for seven years, nor has he communicated with those he would have communicated with if alive. If a person was on board a steamer which is proved to have met with a storm and was heard of no more, that fact may be construed to have brought about the death of the person on board.

Premiums

The premiums, as we have noticed above, are payments made by the assured in consideration of the risk covered by the policy. These payments may be payable either quarterly or half-yearly, according to arrangement. They are payable within the days of grace generally allowed by every life assurance policy, or the assured may required to undergo a second medical examination.

On the payment of the first of these premiums, the risk on the policy begins and it is covered generally by what is known as the ‘Covering Note,’ which is a sort of a provisional agreement to run during the period which has necessarily to elapse before a regular policy can be drawn out.

The rates of premium payable on lives under various denomination rates of premium payable on lives under various denominations are generally laid down in the company’s prospectus for what are generally all laid down in the company’s prospectus. For what are known as “hazardous occupations,’ such as the Army Navy, mining, etc., an extra premium is payable. Extra premium may also be charged for what is known as ‘Climatic Risk,’ i.e. where a person lies in a climate which is considered unhealthy, extra premiums have to be paid.

Surrender Value

This is the value which an insurance company assesses and which it is prepared to pay to the assured who desires to surrender his policy and extinguish his claim. The surrender values are based on the actual premiums paid. As the duration of the policy increases, the assurance company allows a larger surrender value.

Accident Insurance

As the expression suggests accident insurance seeks to indemnify against loss or damage caused by certain accidents. The most well-known form is motor car insurance which covers the risk of damage to the motor car. Such a policy also includes third party risk as it is now compulsory in India to cover this risk.

Generally, third party risk insurance is also useful to property owners and shop-keepers to protect themselves from the risk of liability through injury caused to the persons by reason of defect in the premises or through employees’ negligence. Burglary insurance covers the risk of loss through burglary and theft in private dwelling houses or business premises.

Employers also to cover their legal liability for injury caused to the workmen through insurance such as employer’s liability insurance. Finally, fidelity insurance covers the risk of loss to the employee caused by the fraud of an employee.