TE, IMPORTANCE, ADVANTAGS AND FEATURES, Life insurance occupies the highest position in the modern surance business. Human life is uncertain. Therefore, one of the main tasks of human | being has been to find away to get protection from potential risks. Life insurance | isan excellent system of providing protection against the ill-effects of risks related tolife. Man is encompassed by many responsibilities in his life. In order to fulfil | his responsibilities, man is engaged in various types of economic activities, In old age man’s power diminishes, but he is not free from responsibility. The human body is mortal. No one knows when what will happen. In his life, a Person is worried about the education of children, marriage of children, house, | accidental expenditure, financial protection of dependents after death, etc. The | Solution to all the above mentioned concerns is to get life insurance. Life insurance has both protection and investment element. Life Insurance : Meaning and Definitions In life insurance, only the life of the individual is insured. Life insurance is a contract that promises to pay a certain sum of money on the occurrence of the event for which the insured has gotten insurance against. As per the contract, the insured has to pay premiums to the insurer at regular intervals. The principle of indemnity does not apply in a life insurance contract. Therefore, the insurer is liable to pay a fixed amount on maturity even if the event does not occur during the term of policy. Thus, life insurance has both safety and investment elements. A Some definitions are also given in relation to life insurance, Following are the important definitions : 1. According to section 2 of insurance act, “Life insurance business is the business of effecting contract upon human life.” : 2. According to Life Insurance Corporation of India, “Life insurance isa contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against”. 3. According to J.H. Magee, “The life insurance contract embodies an agreement in which, broadly stated the insurer undertakes to pay a stipulated sum upon the death of the insured or at some designated time a designated beneficiary. G 7 LIFE INSURANCE : MEANING On the basis of the above definitions, it can be said tha((life insurance is a contract in which one party, in consideration of premium, give an undertaking to the other party that on the death of the insured person or at the end of @ certain period, sum assured will be paid to him or his nominee.Life Insurance : Meaning, Importance, Adeantages and Peatures 66 Lake an ordinary contract, a life contret must alan have the qualities of ace Mnsont, valid purpose, valid consideration, ate IMPORTANCE OF ADVANTAGES OF LPR INSURANCE, Man is selfish by nature. He must he iniereated in daing thre works in sqhich he sees benefit ‘Thin is also the reason for the papularity of life insurance Fhe “Smile of tomorrow” appears in the syatem of life inaurnnce This in the “won for peaple’s attraction towards life insuranen. In fact, life inauranen benefits Tre individual, the fimily, the society and the government. These hanefite are the importance, utility and purpose cf life insurance. Following are the benefits that various categories of people get from life insurance. 1 Advantages from the point of view of insured 1,Family Protection : The future is uncertain. So no one knows when oF ight will happen. Ifthe main person of a family dies untimely, then his dependents may face a severe financial crises. Life insurance is a menns of family protection afer death. The person of the family on whom the dependents are responsible, py insuring his life, makes sure that in case of his untimely death, his dependents can get a certain amount. Life Insurance is a contract of a fixed value which is cronted for the heirs or nominee as soon as the insurance is done. UZ Provision for Children : There is a huge budget for children’s higher education and marriage etc. This is a big problem for the low income and average income people of the society. Life insurance plays an important role in solving this problem. By paying a small amount in the form of premium, arrangements are made for the bright future of the children. Since both protection and fivestment-lement-are-involved in Tife insuriineo. Such actions can be accomplished by obtaining alargesum of money from the insurance company if the time of maturity comes during the life of the insured, Conversely, if the insured dies, then life insurance provides for such expenses. As a result, financial crises do not arise for the children. _& Provision for Old Age : In terms of age, old age is the worst one. By reaching this stage, people get tired, their body becomes weak, many diseases get surrounded them. Their ‘economic power comes to an halt. In such a situation, life insurance can play an important role in fulfilling their desire to get comfort. By taking life insurance during the prime time of life, regular income can be made for old age. In fact, life insurance is stick of old age. —4-fligh Standard of Living Possible : The regularity of small accumulations through life insurance can meet the future requirements. The ee of living can be raised higher by fulfilling some big future needs. Encouragement to Saving : Life insurance policies are usually taken for long period, Once the policy is taken, the policyholder has to pay premiums regularly. Premiums can be paid monthly, quarterly, half yearly or annually. Fixed payment of premium encourages the habit of saving. A sense of frugality is inculcated in people so that the premium can be paid with the amount of savings, _4-Exempted from Income Tax ; According to the income tax act, there is @ provision to pay income tax on excess ofacertain income, According to section56 SBPD Publications Principles and Practice of Insurance 80(c) of the Indian Income Tax Act, 1961, n person has to pay income tax on the amount deposited as life insurance premium after deducting the amount from the gross total income, subject to certain conditions, In this way, life insurance is exempted from the insurance. : Advantages on Insolvency : Ifa person takes a life insurance policy in théinterest of the family and even if he becomes insolvent, the amount received against the policy is kept free from confiscation by the court. 8. Provision for Wealth Tax : Wealth tax is collected from the property of the person even after his death. If provision is not made for this, then the property has to be sold for payment of wealth tax. Ifa person takes life insurance, then on his death wealth tax can be paid from the amount received from the insurance company and the property can be saved from sale. IL. Advantages from the View Point of Business Following are the benefits of life insurance for those who are associated with the business sector : -1-Facility in Obtaining Loan : Business may require additional funds from time to time. A businessman can easily get a loan, based on the surrender value on the mortgage of his insurance policy. 2. Facility in Return of Capital of Deceased Partner : In a partnership firm the capital of Several partners is invested, if a partner dies, as per the provisions of the partnership act, the firm will have to pay the concerned capital to his heirs. In case of return of capital financial crises may arise infornt of the firm. But if a joint life insurance policy of the partners is taken, then on the death of a partner a certain amount is received from the insurance company from whieh the capital of the deceased partner can be easily returned. - Protection to Lender : A moneylender can keep the loan amount safe by insuring his debtor's life. By doing so, the debt given after the death of the borrower does not become bad debts. ~4-Insurance of Key Employee : A business organization insures the life of its important employee and receives a certain amount from the insurance company on hisdezth. This may, to a large extent, make up for the loss that would result from the death of such a qualified and experienced employee. 5. Protection from Misappropriation : By insuring his employees, a trader can get protection against possible misappropriation that may be committed by them. IIL Advantage from the View Point of Family and Society Following are the advantage of Jife insurance from the view point of family and society : d,Solution of Residential Problem : Housing is also one of the basic needs of human beings. Getting the house constructed by one person brings happiness for the family. Loan is provided by life insurance corporation for construction of house. Hence, life insurance solves the residential problem. Crucial Help : There are times of crises in the life of a human being like serious diseases, unemployment, old age accident ete. In such times of crises, ordinary people become dependent on family and society. If the life of a person is insured, then financial assistance is received from the insurance company and the burden of society and family get reduced.the om, tee. Insurance ¢ Meaning, Importance, Advantages and Features__67 a sation : Life insuranco is considered a symbol of jjration in modern times, every eminent and edueated person in the society aie act social prestige by getting maximum amount of life insurance. wattnary people also secure their future by imitating-such people. nary ens ‘i oni Proper Utilisation of Savings : The people of the society insure their (y giving their small savings in the form of premium. The money received Ui fn promis ‘creates a fun rive YY uction. pm Self Dependent : If a person insures his life, it also means that he provision for the future. With this type of provision, people are self Micient and the responsibility of the family ends. *" 6, Capital Formation : A large sum of money gets collected’ by the insurince company from the premiums ofthe insured. In other words, the capital formation of the insurance company takes place from the savings of the people. pyinvesting this huge capital in the interest of the nation, the insurance company contributes to the national development. V. Advantages from Government Point of View Following are the main advantages of life insurance from the point of view ofthe government : 1. Advantages of Tax : Selling insurance, policies is a business for life insurance companies. Therefore, companies benefit from this business. The government receives substantial income tax from such benefits. favestment in Government Securities : With the aim of investing money in least risky securities, insurance companies invest most of their money in government securities. This benefits the government. _3Development of the Country : Life insurance encourages the tendency to ‘save, saving leads to capital formation and capital formation encourages investment. As a result of all these the nation develops. _f Reduction in Responsibility : It is the duty of the government of any country to give proper help to the citizens of its country at right time. But life insurance reduces the number of people who depend on the government for ~ ural and personal needs. Thists because ile insurance also hasan investment clement which meets the needs of the people. ponent Wotctu meets 5 dof the insurance company. The insurance company, ting this amount in productive works, contributes to the national FEATURES OR ESSENTIALS OF LIFE INSURANCE Before studying the features of life insurance, it is necessary to make it clear that life insurance is a contract in which one party whois called as insurer, the other party who is called as insured, has to pay a fixed consideration called 48 premium. In return, the insured or his nominee on the death or expiration of specified period will be paid a certain sum of money. The features or elements of a life insurance contract can be classified into the following two parts : | Statutory Provisions For the statutory recognition of a life insurance contract, it is necessary tall the rules of the life insurance contract are followed. Like the ordinaryee ry RIND Pusdticwarieone Pesowigiine woudl Prwrice ff Hoswerionare \ annoy of eds Havin, Cnntvwd Aut, ATR the Ws inneranen enatrwet Naw thy futtnwanp Brostusrone Bagel, wha aie wnsvatintvary tv bas Mallaweet T Frmurwnre stinitd he oboe apprapetataty Paw thie, the (nearer haw ¢ gerenidondt sito Weattion Woe braved start OY Eat atten treme prapeely 2 Thar neo taonne af Vib donowaeve often ahonlt he anwanditinnal ‘The inary howitle Che arroyo of Thu afttan tae tne fraved teat « peemertbed Mert, Thy tine af napmminnreonnes of Hrawewere ent be montioned (rv thi fem : be fT send) nrevypnance omnid Be wit frve enemnt af both the partis | ' ' j | j f | t A Tints tse purtinne area Rares 9 recwuminndd ability (9 enter inte a contraet, 1 ‘The rine pend comustowation af the contract muse be vitlid f. ‘The comtenrt sald pea be dechared void under any law TL. Speeinl Provieton There are ale some special robes of life insurance. Adherence to these rule i nlen characteristics or elements of life insurance. The following are rovernd under mpreinl rales A Ineurable Interest : Incorable interest in life insurance means interest tn continuance of life of the insured and damage or pecuniary loss due to its termination. Thie festure of life insurance decides whom a person can insure. A person may hnve nn economic interest in the life of another person in addition Wwhir own life. To pet that benefit, the life of that person can be insured. Insurable interest in life insurance is considered in the following situations 1, Self Life 1A person has unlimited insurable interest over his life, He is not required to Lowtify insurable interest. So, he can tke the insurance of his life for any amount, provided they have the capacity to pay the premium, 2. Life of Husband / Wife : The husband has unlimited insurable Laterest ‘on the wife and (he wife on the life of the husband. Therefore, the husband or wife can get life insurance for any amount on each other's life. The husband and _ wife do not have to provide any proof of insurable interest on each other's life, 3. Life of Other Familiar Members : Other family members of a person _ indlude parents, siblings, sons, daughters, and others, Following provisions are _ made in this regard = . (i) A father on his son’s life, if he is dependent on his son, (Gi) A son on his father’s life, if he is dependent on his father, (ii) Mlegally married wife on the life of her husband if she is dependent on her husband. (iv) To a sister in the life of her brother, provided she is dependent on the brother, ete. ; For insurable interest in family relations, various courts have held that mere blood relation or love or affection does not constitute insurable interest, but it has to be proved that concerned person is dependent on the insured. 4. Life of Other Persons : Insurable interest in the life of other persons has the following provisions : ; () A partner has an insurable interest in the lives of the other partners the extent of the capital paid by them. (ii) A moneylender has an insurable interest in the life of his debtor upt? the amount of the loan and the amount of interest.Meaning, Importance, Advantages and Features _ 59 fe Insurance Anomployco has an insurable intorost in tho life of his em : ployer to the extont of salary, provided ho is appointed by contract on fixed pay for specified period. jy) An owner has an insurable interest in the lives of his significant ‘employees upto the potential loss that the employce’s death may cause. A porson giving surily has insurable interest in the life of the porson to hom he has given surity. (vi) The trustee has an insurable intorest in the life of a person who has paid annuity to his testator. B. Utmost Goodfaith + As oxplained oarlicr, insurance is a contract based on utmost good faith. A complete explanation of all the essential facts with respect to the life offered is an essential condition of the characted of utmost good faith while taking life insurance. Therefore, while having the pursuance of lifeinsurance, both the insurer and the insured should disclose important facts w) accurately. For life insurance, the proposer has to fill in the correct answers to the questions given in the prescribed form issued by the insurer. These questions fontain the details of the personal and family details of the insured. The insurance ser should answer these questions clearly, completely and accurately. At The end of this prescribed form, the proposer has to declare that all their particulars are true and no false statement of mis-statement has been used anywhere and if any of the statement turns out to be false, then the insurance contract will become void. The law of utmost good faith applies equally to the insurer and his agent. An insurance agent is active in the insurance business on behalf of the insurer. ‘Therefore, it is the duty of the insurance agent to tell the insurance proposer the facts regarding the insurance. Prompting of insurance by suppressing the facts violates the law of utmost good faith and may lead to contract void. ‘The rules of utmost good faith must be followed in full until the contract is confirmed. Therefore, after sending the insurance proposal but before its acceptance, whatever new important facts come to the knowledge of the insurance proposer, they should be told to the insurer. The insurer should also give such information to the proposer following the same rule while making any change in the terms of the insurance policy. : In addition to the above features, two major features of a life insurance contract are the “protection” and ‘Investment’ elements. In life insurance the receipt of sum insured on the death of the insured during the specified period and the maturity amount at the end of the term is the result of the maturity of the protection element and the investment element respectively. ENTRANCE OF PRIVATE SECTOR IN LIFE INSURANCE BUSINESS d in India in the year 1956, it was big Jd because before that life insurance e world. prop When life insurance was nationalize ie for the insurance sector of the wor ad not been nationalized in any country of theSBPD Publications Principles and Practice of Insurance On January 19, 1956, by an ordinance of the president, the management and control of all 246 life insurance companies operating in India came into the hands of the government of India. Again in June 1956, the “life insurance corporation act 1956” was passed in the Lok Sabha in relation to the life insurance corporation, which came into force from July 1, 1956. Under this act, the life insurance corporation of india was established as a government body, which got a monopoly in the field of life insurance. Again in April 1993, the Malhotra committee was constituted by the central. government to consider the private sector's entry into the insurance business. On the basis of the recommendations of the committee. “Insurance Regulatory and Development Authcrity” was set up on 19th April, 2000. After the formation of this authority, the private sector was allowed to enter the insurance business. Of the 37 private companies that have entered the insurance business so far, 22 deal only with life insurance. in the life insurance business, there After the entry of the private sector has been a lot of progress in the life insurance business. IRDA annual reports reveals that the private sector has made significant success in comparison to life insurance corporation of India in the area of receiving regular premiums. But life insurance corporation of India is still ahead in getting single premium. Similarly, life insurance corporation of India has a strong hold on the market in terms of total premium received. ee ee HY ANATRTIA TION OTTESTTIONS 60