Reinstatement/Revival

Reinstatement is the process by which a life insurance company puts back into force a policy that has either been terminated because of non payment of premiums or has been continued under one of the non forfeiture provisions

 Conditions of Policy Revival:

• Payment of outstanding premium with interest
• Fee for reinstatement
• Proof of continued good health & income
• No increase in Risk cover
• Within time frame - in India within 5 years from the date of Lapse
• Payment of outstanding loan
• Fresh medical examination may be required if SA is large

Revival is more often advantageous because buying a new policy would call for a higher premium based on age on the date of revival

Documentation - Policy Condition

Grace Period

• The "Grace Period" Clause grants the policyholder an additional period of time to pay the premium after it has become due
• The standard length of the grace period is one month or 31 days computed from next day after due date.
• The premium however remains due and if policyholder dies during this period, the insurer may deduct the premium from the death benefit. if premium remain unpaid even after grace period is over, the policy would then be considered lapsed and the company is not under obligation to pay the death benefit but for the amount under Non Forfeiture provisions.

Lapse

If the policy premium has not been paid even during days of grace, the policy is deemed to be lapsed.

Policy Document

• It is the evidence of the contract between he assured and the insurance company.
• If the insured person loses the original life insurance policy document, the insurance company will issue a duplicate policy without making any changes to the contract.
• It has to be signed by the competent authority and stamped according to indian Stamp Act

Policy Document Components

•  Policy Schedule 

        It contains Policy owner's name & address, DOB, Age, Plan & Term, Whether the policy is            Par/Non Par, Mode of Premium, Policy no, DOC, SA, Premium paid, Nominee, details of riders etc.,

• Standard Provision 

These are normally present in all LI Contracts. These Provisions define the rights and privileges and other conditions viz; days of grace, non- Forfeiture in case of Lapse

• Specific Policy Provisions

These may be printed on the face of the document or inserted seperately in the form of an attachment

Eg: A clause precluding death due to pregnancy for a lady who is expectingat the time of writing the contract

Documentation - Policy Condition - I

First Premium Receipt (FPR)

An Insurance contract commences when the life insurance company issues a FPR.
The FPR is the evidence that the policy contract has begun

FPR contains the following information's:

1. Name and address of the life assured
2. Policy Number
3. Premium amount paid
4. Method of frequency of premium payment.
5. Next due date of premium payment
6. Date of commencement of the risk
7. Date of final maturity of the policy
8. Date of payment of the last premium
9. Sum assured

The company may require a moral hazard report from an official of the insurance company

KNOW YOUR CUSTOMER (KYC)

It is the process used by a business to verify the identity of their clients.

Agents should ensure that proposers submit the proposal form along with the following as part of the KYC Procedure:

·         Photographs

·         Age Proof

·         Proof of address-driving license, passport ,telephone bill, electricity bill, bank passbook etc.

·         Proof of identity- driving license, passport, voter ID card, PAN card etc.

·         Income proof documents in case of high-value transactions

Anti Money Laundering(AML)

1. Money Laundering is the process of bringing illegal money into the financial system by hiding its illegal origin so that it appears to be legally acquired.
2. Money Laundering is the term used to describe the process of turning dirty money into clean money.
3. This act came into effect from 1st July 2005 to control money laundering.
4. The AML program should include :

• Internal Policies, Procedures and controls
• Appointment of a principal compliance officer
• Recruitment and training of agents on AML measures.
• Internal Audit/Control

Medical Examiner's Report

Details Pertaining to physical features like height, weight, blood pressure, cardiac status etc are recorded and mentioned by the doctor in his report is call the Medical Examiner's Report

Moral Hazard Report

It is the likelihood that a client's behavior might change as a result of purchasing a life insurance policy and such a change would increase  the chance of loss. The company may require a moral hazard report from an official of the insurance company.

Valid Age Proof

• Standard Age Proof
• School or college certificate
• Passport 
• PAN Card
• Service register
• Certificate of baptism
• Certified extract from a family bible if it contains the date of birth
• Identity card in case of defence personnel
• Marriage certificate issued by a Roman Catholic Church

Documentation - Proposal Stage

Prospectus

It is a formal legal document used by insurance accompanied that provides details about the product

Prospectus explains the below:

• Terms and Conditions
• Scope of benefits - Guaranteed and non - guaranteed
• Entitlements
• Exceptions
• Whether the plan is participative or non participative

Proposal Form

The insurance policy is a legal contract between insurer and the policy holder. As is required for any contract, it has a proposal and its acceptance. The  application document used for making the proposal is commonly known as the 'proposal form'

Agent's Report

The Agent is the primary underwriter. All material facts and particulars about the policy holder relevant to risk assessment need to be revealed by the agent in his/her report,

Unit Linked Insurance Policies(ULIP)

• Sustainable to people prepared to undertake some investment risk
• Contain fewer guarantees
• They are much more flexible
• In a ULIP the insure has a variety of funds to choose from like equity funds, debt funds, balanced funds and money market funds etc for their investments.
•  ULIPs give the insured the option to participate in the growth of the capital markets

• On the death of the insured the sum indured or the market value of the investment (fund value), whichever is higher, is paid
• On maturity of the plan the fund value is payable
• Settlement option: instead of taking a lump sum amount, some plans provide the policyholder eith the option to receive the maturity benefit amount as a structured payout(periodic installments) over a period of time ( say, 5 years or any time up to 5 years) after maturity

In traditional Plan like Endowment, the insured decides the amount of Sum Assured to be purchased. Whereas in ULIP, the insured decided the amount of Premium ; Sum Assured is a multiple of the premium paid (ex: 10 times the annual premium)

Bonus

Bonus is paid as an addition to the basic benefit payable under a contract

Types of reversionary bonus

Simple Reversionary Bonus
Insurer declares bonus on the sum assured

Compound Bonus
Compute the annual bonus on a compound interest

Terminal  Bonus
As incentives to the insured to continue with the company for long term. It increases as the duration increases.

Guiding Principles of Determining amount of loading

Adequacy
The total loading from all policies must be sufficient to cover the company's total operating expenses. It should also provide a margin of safety and finally it should contribute to the profits or surplus of the company.

Equity
Expenses and safety margins etc   should be equitably apportioned among various kinds of policies, depending on type of plan, age and  term etc

Competitiveness 
The resulting gross premiums should enable the company to improve its competitive position

Components of premium

Rebates

Life insurance companies may offer certain types of rebates on the premium that is payable. Teo such rebates are

• For sum assured
• For mode of premium

Extra charges(Loadings)

Addition to net premium

Example : Administration charges, medical expenses, processing fees, profit margin bonus etc.

Types of Premiums

Arriving at the rate is performed by an Actuary

Office Premium

This rate printed in the tables of insurance companies. These are typically level premiums which need to be paid every year.

Risk Premium

Premium is charged to meet the claim for the yar.

          Risk Premium = Mortality Rate x Sum Assured

Level Premium

Equal premium charge for entire term of the policy

Net Premium

The interest earned is also considered for the premium calculation.

          Net premium = Premium-Interest Earnings.

Gross Premium

          NET PREMIUM+LOADING FOR EXPENSES+LOADING FOR  CONTINGENCIES + BONUS LOADING

Higher for mortality rate, higher the premiums would be.

Higher the interest rate assumed, lower the premium.

Premium

• Pricing refers to the process of calculating the rate of the premium that will be charged on insurance policy.
• It is normally expressed as a rate of premium per thousand of Sum Assured

The  policyholder can pay the premium in a number of ways:

• Single Premium Plan
• Level  Premium Plan 
• Flexible Premium Plan

Keyman Insurance

It can be described as an insurance policy taken out by a business to compensate at for financial losses that would arise from the death or extended capacity of an important member of the business.

The SA under keyman insurance policy is generally linked to business profitability. The Death Benefit in the key man insurance is taxed as income.

Mortgage Redemption Insurance(MRI)

It is an insurance policy that provides financial protection for home loan borrowers. It is basically a decreasing term life insurance policy taken by a mortgagor to repay the balance on a mortgage loan if he /she dies before its full repayment. It can be called loan protector policy.

Persona Designata

The Policy must be on his own life

The proposer should be a married, divorced or widowed man. Only his wife and children can be beneficiaries

Each policy will remain a separate trust. when a claim arises, the policy monies will be paid to the trustees according to the policy.

The trustees hold the policy money for the beneficiaries. It should not have been formed to defraud creditors. Two or more trustees can be appointed.

Nomination and assignment are not allowed.

In the case of Mohammed proposers:

• The beneficiaries have to be named as it is 'Persona Designata'
• The name of the wife and children as beneficiaries should be stated in the policy and they must be existing at the time the policy is taken out.
• In circumstances where there are more than two beneficiaries, the proposer needs to mention the respective share for each beneficiary.

Married Women's Property Act 1874

The Proposer can appoint :

• A person as a trustee
• Two or more persons as trustees
• A corporate trustee, such as bank transacting trustee business

I a trustee is not appointed or not existing, official Trustees will be appointed by a competent Government Authority.

The beneficiaries of a life insurance policy affected by the MWP Act can be:

• The wife alone
• One or more children or
• The wife and one or more children jointly

Insurance under the MWP Act is free from

• Court attachments
• Tax attachments and
• Creditors

The policy cannot be amended or surrendered

Applications of Life Insurance

Married Women's Property Act 1874

1.Section 6 of this act provides that a life insurance policy that has been taken out bya married man on his own life, for the benefit of his wife and children, shall be deemed to be a trust and will be outside the control of the life insured, his creditors, court attachment etc.

2.A trust is a legal agreement, which has 3 parties associated with it-

• A trustor
• A Trustee and 
• A beneficiary

3.A Trustee must be a major(18 years and above) and their consent to act as a trustee should be taken and added to the policy as an endorsement.

4.The trustor, or the author of the trust is the person who forms the trust.

5.The trustee can either be a person or an entity who/which is responsible for managing the assets, the ownership of which is entrusted to them as a 'trust' by the trustor.

6.The beneficiary is an individual/ entity who receives the benefits from the trust.

Common Definitions in Health Insurance

Family Floater Policies:

The sum insured floats among the family members. Family floater covers husband,wife,children,parents and parents in law.The eligibility as per the age factor varies from insured to insurer,from as young as 3 months to 80 years and above.

Group Health insurance policy :

This policy available to groups/associations/institutions/corporate bodies and provides insurance protection. The employees are not a direct party to the insurance contract. Insurance company issues one master policy covering all the members of the group.

Domiciliary Hospitalization :

Certain insurers offer Domiciliary Hospitalization benefit. This refers to medical treatment for a period exceeding 3 days, for want of accomodation in a hospital or the condition of patient does not permit transfer to a hospital.

The premium is based on age & sum assured selected.

Cashless Facility :

Costs of treatment are directly made to the network provider by the insurer

Free look in period of 15 days is applicable

30 days Grace period is allowed for renewal

Common Definitions in Health Insurance

Inpatient :
Insured who undergoes treatment after getting admitted in the hospital

Outpatient:
Insured who undergoes treatment without getting admission/staying in the hospital

Day care centre:
Diseases do not require more than a day's stay in the hospital or less than 24 hrs at times Eg.cataract

Third Party Administrator(TPA):
It means any person who is licensed under the IRDA(Third Party Administrators - Health Services) Regulations, 2001 by the Authority, and is engaged for a fee or remuneration by an insurance company, for the purposes of providing health services.

Network Provider:
Hospitals enlisted by an insurer of or by a TPA & Insurer together

Portability:It is the right of the policy holder to transfer the policy with the same conditions from current insurer to the new insurer.

Pre existing Condition(PED): Existing illness before taking the policy with the same conditions from current insurer to the new insurer

Senior citizen:
Who has completed 60 yrs or above

Health Insurance

1.It is the contract between the insurer and the insured where in the insurer agrees to pay hospitalization expenses to the extent of an agreed sum insured in the event of any medical treatment arising out of an illness or an injury.

2.A Health insurance policy generally covers the basic costs in case of hospitalization due to any accidents/diseases/illnesses which do not form a part of the permanent exclusions of the policy.

3.Health insurance policies gives a tax benefit under Sec 80 D of income tax Act.

4.Grace period beyond the expiry date of the policy for renewal is 30 days.

Types of Annuities

Immediate Annuities

Becomes payable one annuity period later purchasing it in lumpsum

Commenses at end of monthly, quarterly, half yearly and yearly

Deferred Annuities

With a deferred annuity, money is invested for a period of time until the annuitant is ready to receive annuities.

Is paid after accumulation or deferment phase

Basic Classification of Annuities

• Firstly, how the annuity is purchased, they are divided into single premium annuities, by paying the lumpsum premium and by paying series of premium over a number of years.
• Secondly, how often the annuity is paid, it is typically on monthly basis but other options like fortnightly or quarterly may be possible.
• Third way, when the annuity payment is due to begin, either immediate or a deferred annuity
• Fourth classification, Length of the payout period or when the annuity payments would end.
• Finally, whether the annuity amount is fixed(Guaranteed) or variable.

Payment to Annuitants:

1. Annuities are paid to annuitants as long as they live during guarantee period & thereafter to nominee.
2. In joint life annuity, after death of annuitant, 50% of annuity is paid to surviving spouse during her life time.

• If the spouse predeceases the annuitant, the annuity ceases.

Types of Pension Schemes

1.Public Pensions

a.This is known as the first pillar of social security and consists of pensions that are provided by the state.
b.These are publicly managed with mandatory membership and are typically funded on a "Pay As You Go)(PAYG) Basis

2.Occupational Pensions
This is the second pillar of post-retirement provision. Occupational pensions have been set up by employers for their employees, with contributions from both employers and employees.  They are normally sponsored and form part of the employees benefit package

3.Personal Pensions
A personal pension is typically offered and purchased in the form of an annuity contract between the insurance company or other pension provider and an annuitant

Commutation of Pension
1/3rd of the accumulated value can be withdrawn at the time of retirement and is tax-free

Pensions and Annuties

Difference between Life Insurance Products and Pension Products:

Life Insurance Products	Pension Products
Purpose of Product : Life Insurance products have been designed basically to provide protection against the financial consequences of an individual’s early and premature death	Pension products provide protection against the financial consequences that may arise when the individual lives too long and thus outlives one’s financial resources
Contingency covered: In case of life insurance, the basic contingency covered is that of mortality	In case of pensions it is postretirement income discontinuity
Product structure: In the case of life insurance, a stream of premium payments results in creation of a capital sum, known as the sum assured. This sum is payable to the individual’s nominees or beneficiaries in the event of death of the individual, or may be paid as a survival benefit at the end of the term in the case of endowment policies.	In the case of pensions, a capital sum, which we may call a corpus or total consideration gets liquidated in part or whole through its conversion into a stream of regular income payments . These are known as annuities

Investment Fund Options offered by ULIP's

• There is a provision to SWITCH from one kind of fund to another
• The investment risk is borne by Unit Holder. The insurer bears the mortality & expense risk.
• Unlike conventional plans, ULIP works on a minimum premium basis and not on Sum Assured.
• Insurance cover is multiple of the premium paid.

Unit Linked Insurance Plans

• Suitable to people prepared to undertake some investment risk.
• Contain fewer guarantees
• They are much more flexible
• ULIPs give the insured the option to participate in the growth of the capital markets.
• On the death of the insured the sum insured or the market value of the investment(fund value), which ever is higher is paid.
• Fund value = Unit Price * No of Units in the individual's account
• On maturity  of the plan the fund value is payable
• Lock in period :  5 years

Break up of ULIP Premium:

• Expenses
• Mortality
• Investment

Variable Insurance Plans

• This policy was introduced in the United States in 1977
• Variable life Insurance is a kind of  "Whole Life" Policy where death benefit and  cash value of the policy fluctuates according  to the investment performance of a  special investment account into which premiums are credited. Hence it provides no guarantee on interest rate or minimum cash value.
• Knowledgeable people comfortable with equity are most likely to buy variable life insurance.
• Premium payments are fixed and not flexible.
• Provides minimum death benefit guarantee. Mortality and expense risks are borne by insurer.

Appeal

Major sources of appeal of the new genre of products that emerged world wide are
i.Direct linkage with the investment gains
ii.Inflation beating returns
iii.Flexibility
iv.Surrender value

The Shifts

a.Unbundling : This trend involves separation of the protection and savings elements

b.Investment Linkage: The shift towards investment linked products, which linked benefits with an index of investment performance.

c. Transparency : Greater visibility in the rate of return and in the charges made by the companies for their services(like expenses etc)

d.Non - standard products : The fourth major trend has been a shift from rigid to flexible product structures, which is also seen as a move towards non- standard products. 

Life Insurance Products

Non Traditional Life Insurance Products : Purpose & Need

• These products have often been considered as being part of the financial market and compared with other instruments of capital accumulation.
• Purpose of savings and investing  is to achieve inter-temporal allocation  of resources, which is both efficient and effective.
• Inter - Temporal allocation means allocation across time.Traditional Cash value plans have been called "Bundled Plans' as their structure is bundled and presented as single package of benefits and premium

Limitations of Traditional Plans:

a.Cash value Component: The savings or cash value component in traditional insurance policies is not well defined.

IRDA's new Guidelines for traditional products

According to the guidelines, the product design of traditional plans would remain almost the same.

New Traditional products wil have a higher death cover

i)For single premium policies it will be 125% of the single premium for those below 45 years and 110% of single premium for those above 45 years.

ii)For regular premium policies, the cover will be 10 times the annualized premium paid for those below 45 and seven times for others.

Premium / Age	<45 years	>45 Years
Single Premium	125% of Premium	110% of Premium
Regular Premium	10 Times of Premium	7 Times of Premium

The minimum death benefit in case of traditional plan is at least the amount of sum assured and the additional benefits (if any)

In addition to the sum assured, the bonus / additional benefits as specified in the policy and accrued till date  of death shall become payable on death if not paid earlier

These plans would continue to come in two variants, participating and non participating plans. 

Variants of Endowment Assurance Plans

Money Back Plan:

It is typically an endowment plan with the provision for return of a part of the sum assured in periodic installments during the term and balance of the sum assured at the end of the term.

Par and Non-Par schemes:

It is also known as participating and non-participating policies.

The term "Par" implies policies which are participating in the profits of the life insurer. "Non-Par" on the other hand represent policies which do not participate in the profits. Both  kinds are present in the traditional life insurance.

Par schemes: Policyholders are either guaranteed a part of growth or get a share of surplus from investments by insurers. These plans have higher premiums. profits are payable as reversionary bonuses or dividends. Apart from this, life insurer may also declare Terminal Bonuses(not guaranteed)

Non Par: Benefits are fixed and guaranteed at the time of contract

Endowment Assurance Plans

It has both death and a survival benefit component.

Endowment is primarily a savings programme, which is protected by provision of insurance against the contingency of premature death.

The plan is also made attractive because of the provision for deduction of premiums for tax purposes.

Variants of Endowment Assurance plans

• Money Back Plan
• Par and Non- Par Schemes

Limitations of Term Assurance Plans

• The Purpose of taking insurance cover is more permanent and the needs for protection extends beyond the policy period
• The policy holder may uninsurable after the age of 65 or 70
• Term assurance may not work in such situations

Whole Life Insurance Plans

1. It is an example of permanent life insurance policy throughout the life
2. There is no fixed term of cover but the insurer offers to pay the agrees death benefit when the insured dies, no matter whenever the death might occur.
3. Whole life premiums are much higher than term premiums.
4. Cash Value: After taking the amount of money it needs from premium to meet the cost of term insurance; the balance money is invested on behalf of the policy holder.

Variants of term Assurance

Decreasing Term Assurance

These plans provide a death benefit that decreases in amount with term of coverage

Mortgage Redemption:
It pays off a policy holder's mortgage in the event of the person's death

Credit Life Insurance:
Designed to pay the balance due on a loan, the borrower dies before the loan is repaid

Increasing Term Assurance
This plan provides a death benefit, which increases along with the  term of the policy

Premium generally increases as the amount of coverage increases

Term Insurance with return of premium
This plan leaves the policy holder with the satisfaction that he/she has not lost anything in case he/she survives the term

The premium paid would be much higher than that applicable for an equivalent term assurance without return of premium

Traditional Life Insurance Products

Term Insurance Plans:

1.Term Insurance is valid only during a certain time period that has been specified in the contract

2.Only Death Benefit

3.A term insurance policy comes handy as an income replacement plan

4.Term Assurance can be bought as a standalone policy as well as a rider with another policy

5.In decreasing term insurance, the premiums paid remain constant over time

6.Term insurance plan is a good choice for an individual who needs insurance and has a low budget

7.Price is the primary basis of competitive advantage in term assurance plans.

Life Insurance Products

what is a product?
A product is the output or results of certain labour or efforts
It means "to bring forth" or "to create"

Two types of products

Tangible
refers to physical objects that can be directly perceived by touch

Intangible
refers to products that can only be perceived indirectly

Life Insurance is a Intangible Product

Financial Planning Types

Cash Planning

Managing cash flows has 2 purposes

1. Firstly one need to manage income and expenditures flow including establishing and maintaining a reserve of liquid assets to meet unanticipated or emergency needs.
2. secondly one need to systematically create and maintain a surplus of cash for capital investment

Investment Planning

Investment Planning is  a process of determining the most suitable investment and asset allocation strategies based on an individual's risk taking appetite, financial goals and the time horizon to meet those goals

Insurance Planning

Insurance Planning involves constructing a plan of action to provide adequate insurance against such risks.  The task here is to estimate how much insurance is needed and determining what  type of policy is best suited

Retirement Planning

It is the process of determining the amount of money that an individual needs to meet his needs post retirement and deciding on various retirement options for meeting these needs.

Elements of Financial Planning

• Investing
• Risk Management
• Retirement Planning
• Tax & Estate Planning
• Financing one's needs

The Challenges facing our society and our customers

• Disintegration of the joint family
• Multiple Investment Choices
• Changing Lifetyles
• Inflation
• Other contingencies and needs

Risk Profile & Investments

One’s Investment style also changes to keep pace with the risk profile

Risk Profile

Aggressive

Progressive

Secured

Conservative

Investment Style

Accumulation

Consolidation

Spending

Gifting

Financial Products

Transactional Products

Bank deposits and other savings instruments that enable one to have adequate purchasing power (Liquidity) at the right time and quantum

Contingency products like insurance

These provide protection against large losses that may be suffered in the event of sudden unforeseen events.

Wealth accumulation products
Shares and high yielding bonds or real estate are examples of such products.
Here the investment is made with a view to committing money for making more money

Life Stages

Childhood stage 
When one is a student or learner

Young Unmarried stage
 When one has begun to earn a livelihood but is single

Young Married stage
When one has become a partner or spouse

Married with young children stage
When one has become a parent

Married with older children stage
When one has become a provide who has to take care of education and other needs of children who are growing older

Pre - retirement stage
 when the children may have become independent and left the house

Retirement stage
when one passes through the twilight years of one's life

Financial Planning

• It is  process of identifying one's life goals, translating these identified goals into financial goals and managing one's finances in ways that will help one to achieve those goals.
• Is a process through which one chart a road map to meet expected and unforeseen needs in one's life 
• Is taking actin to turn one's goals and desires into reality
• Takes into account one's current and future needs
• The best time to start financial planning is right after one receives the first salary.

Types of Goals

1. Short Term : Buying an LCD TV Set or a family vacation
2. Medium Term : Buying a house or a vacation abroad.
3. Long Term : Education or Marriage of childrens and post retirement provision

Legal Principles of Life Insurance

Proximate Cause

• It is defined as the active and efficient cause that sets in motion a chain of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.
• In general, since Life Insurance provides for payment of a death benefit, regardless of the cause of death, the principle of Proximate Cause would not apply. It applies only to Riders.

Adhesion Contract

Drafted by the party having greater bargaining advantage, providing the other party with only the opportunity to accept or reject it. Here the Insurance Company has all the bargaining power. To neutralize this free look in period is offered to policy holder.

Free Look Period - 15 Days

1. free-look period has been introduced whereby a policyholder, after taking a policy, has the option of cancelling it, in case of disagreement, within 15 days of receiving the policy document.
2. The company has to be intimated in writing.
3. Premium paid is refunded less expenses & charges.

Material Facts

• Defined as those which would influence the judgement of a prudent insurer in fixing the premium or determining whether it will take the risk

• Material facts help company underwriters to decide

1.  Whether to accept the risk proposal or to reject it.
2.   If the proposal is to be accepted, then at what price it should be accepted.

By common Law, insurer interest is deemed to exist in the following circumstances:

• Own Life - self(Unlimited cover)
• Spouse - wife
• Children's  Life
• Assets

In Life Insurance, insurable interest should be present at the time of taking the policy. In general Insurance, insurable interest should be present both at time of taking the policy and at the time of claim with some exceptions like marine policies.

Uberrima fides or Utmost Good faith

• It means that every party to the contract must disclose all material facts relating to the subject matter of the insurance
• A positive duty voluntarily to disclose, accurately and fully
• All facts material to the risk being proposed
• The principal applies equally to both the proposer and the insurer throughout the contract
• If utmost good faith is NOT observed by either party, the contract may be avoided by other

Breaches of the duty of utmost good faith can be categorised as

• Non- disclosure
• Concealment of a material fact
• Fraudulent misrepresentation or statement made with the intention of deceiving the insurer
• Innocent misrepresentation or inaccurate statements  which are believed to be true

Consent is said to be free

Consent is said to be free when it is not caused by

Coercion

It involves pressure applied through criminal means

Undue Influence

When a person who is able to dominate the will of another uses his/her position to obtain an undue advantage over the other

Fraud

When a person induces another to act on a false belief

Mistake

Error in one's knowledge or belief of a thing or event

Legal Principles of Life Insurance

Insurance Contract

• Involves a contractual agreement in which the insurer agrees to provide financial protection against certain specified risks for a price or consideration known as the premium
• The contractual agreement takes the form of an insurance policy
• Insurance is a value contract and economic value of asset

Elements of Valid Contract

1. Offer and acceptance: One party make an offer which the other party accepts unconditionally
2. Consideration : Means premium from insured & the promise to indemnify is the consideration from insurer
3. Agreement between parties(Consensus ad item): Both the parties should agree on the same thing in the same sense
4. Free consent : There should be free consent while entering into a contract
5. Capacity of the Parties : Both the parties to the contract must be legally competent to enter into the contract(Major, Soundminded, not disqualified under law)
6. Legality: The object of the contract must be legal

Cash Value Insurance Contracts

Advantages

• Safe and Secure investment
• Inculcates saving discipline
• Income tax advantages
• Provides Liquidity
• Safe from creditors claims

Disadvantages

• Returns subject to corroding  effect of inflation
• Low accumulation in earlier years
• Lower Yields