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