Objective of the Research:
An overview of the basic concepts of Life Insurance policies with reference to the maturity, lapse and renewal.
Scope of Research:
The paper deals only with the underlying basic concepts of maturity, lapse and renewal of life insurance policies with the help of secondary literature and few judicial precedents.
• What is meant by Life insurance and why do we need one?
• What is maturity and maturity claim?
• When does a policy lapse and its effect thereafter
• Concept of renewal and revival when can one ask for renewal and revival?
Chapter I deals with introduction to life insurance policies and insurance contract
Chapter II deals with Maturity and maturity claim
Chapter III deals with Renewal and effects of renewal
Chapter IV deals with Lapse and revival of policy
Chapter V deals with conclusion
Our Life is very precious and that is reason it is very difficult to put a price tag upon it. Money definitely cannot bring back our late loved ones or buy us the same amount of happiness and affection. But it can surely help us realize its value for survival. It is difficult for a family to survive if its sole bread earner dies unexpectedly. The demise of our loved one creates a space which is difficult to fill but the absence should not disrupt the financial future of that family. As it is, the grief of losing a family member is a lot to deal with; and upon that financial woes should not be reason behind unstableness. Therefore, it is essential to realize the cost of one’s life and opt for life insurance, which is a safeguard against financial loss resulting from insured’s death. In legal terminology, it is a contract between an insured (Policy Owner) and insurer, wherein the latter agrees to reimburse the amount on happening of the insured individual’s death or critical illness. The insured agrees to pay the same in terms of insurance premium for availing the benefits of the service.
Life insurance provides us with risk coverage and in return promises take care of financial needs of family after the death of the insured. Besides providing coverage against all kinds of risks, it provides an opportunity to grow upon investments.
Life Insurance Contract
The Expression “life insurance” as defined in section 2(11) of the Life insurance Act,1938,comprises any contract in which one party agrees to pay a given sum upon happening of a particular event contingent upon the duration of human life.
Life Insurance business defined as defined under S.2 (11) of the Insurance Act, 1938, is business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death or the happening of any contingency dependant on human life, and any contract which subject to payment of premiums for a term dependent on human life including those enumerated in clauses (a) to (c) thereof. Thereby, the contract of insurance is hedged by bilateral agreements on human life upon payment of premium subject to covenants contained there under. But the insurer is not entitled to impose unconstitutional conditions including that, which denied the right of entering into the contract, limiting only to a class of persons under a particular policy. The insurer is free to evolve a policy based on business principles, and conditions before floating the policy to the general public offering on insurance of the life of the insured but as the insurance being social security measure, it should be consistent with the constitutional animation and conscience of socio economic adumbrated in the constitution.
There is statutory definition of life insurance, but it has been defined as a contract of insurance policy whereby the insured agrees to pay certain sums, called premiums, at specified times, and in consideration thereof the insurer agrees to pay certain sums of money on certain conditions and in specified way, upon happening of a particular even contingent upon the duration of human life.
The essential features of life insurance are as follows:
1) It is a contract relating to human life, which
2) Provides for payment of lump-sum amount, and
3) The amount is paid after expiry of certain period or on the death of the assured.
In Dalby v. London and Indo Life Assurance Co, it was defined as a “contract to pay a certain sum of money on the death of a person in consideration of the due payment of a certain annuity for his life calculated according to probable duration of life.”
Maturity of Life Insurance Policy
Maturity is generally considered as a good thing, whether it is food items or people. Things that are matured means that they must have grown into their inner potential. Similarly, insurance policies also attain the age of maturity over a period of time. It means that the policy has attained its designed growth, and prima facie has a large quantum of cash value. It is neither good nor bad, but one needs to understand what actually it means and what effect it has on financial plans.
Most articles about life insurance talk about two kinds i.e. Firstly, Term insurance which covers an individual for a preset number of years, and then it ends. Secondly,Permanent insurance covers an individual for life, that is why the traditionally it was known as “whole life.” Individual can also build equity upon the policy over the period of time. In fact, one can often think of it as taking out a “mortgage” on the amount of your policies death benefit. Once your equity equals the face value, your policy is said to have “matured.”
When the insured survives on the date of the maturity, and the policy does not stand assigned, the amount is payable to the insured. Even if the policy stands nominated the nominee is not entitled to the amount.
Renewal of Life Insurance Policy
Renewal of the policy once the fixed period of insurance has expired is an option open to the parties, either by issue of a renewal receipt following payment of a renewal premium, or through a new policy altogether.
The policy may incorporate special conditions and stipulations as to renewal. Renewal is made by following ways:
• By Mutual Consent: The offer can be may made by either the insured or the insurer. If it is made by the insured then the insurer retain the freedom to accept or refuse the offer of renewal which was made at the time of renewal premium. Insurer cannot be compelled to accept the renewal premium. Whereas in case the offer of renewal is made by the insurer by sending a renewal notice to the insured then payment of renewal premium following the receipt of a renewal notice must be accepted by the insurer.
• Preference of the insured: If an insured is entitled under the policy to renew it then such a right may be not be restricted, wherein the policy has to be renewed if he wished. The stipulation in the policy may however provide that such a right is liable to be defeated if, before it is expired, the insurers have given notice of their intention to determine the policy at the expiration of the current period.
• Renewed unless otherwise intimated: The stipulation may be in such terms as to provide for it operation for a further period unless notice has been given by either party to determine it before the expiration of the original period. Non-issue of such a notice implies that the policy continues as a matter of course. Consequently, the insured is automatically under the obligation to pay the renewal premium, as also the insurers are under an obligation to compensate for the risk occurred during the renewed period.
Usually, there is no binding obligation to do so; the common practice followed by insurers is to send the insured a renewal notice notifying him that the premium is to fall due shortly. This constitutes an offer to renew the policy, and may be so on the terms of the original policy or with the insertion of any modification. The insured, on his part, signifies his acceptance by tendering the premium for the renewed period, and unless he does so the terms of the original policy or with the insertion of any modifications. The insured, on his part, implies his acceptance by tendering the premium for the renewed period, and unless he does so the premium does not take effect. Payment made to an agent of the insurer is effective depending in the agent’s authority to receive such premium payments but the insurers cannot disclaim liability on mere technical grounds of any formality in form of receipt actually handed over by the agent.
In order to signify renewal of the premium payment after due payment of the second premium, a receipt is issued by the insurer.
Effect of Renewal,
The common question raised upon renewal is whether it amounts to a mere extension of operation of the original contract or whether it is the creation of a new contract.
In ascertaining the renewal the consequences, the manner and method by which the renewal has been brought about by the policy must be considered.
The following circumstances are to be mentioned:
• Provisions for renewal unless ascertained specified even occurs
In this situation, where the policy mentions its continued operation by renewal unless the specified event occurs, the renewal is a continuation of the original contract of policy. The termination is signified by the happening of the specified event.
These circumstances imply that the duty of disclosure is exhausted once in for all, and accordingly, those facts which were immaterial at the time of making of insurance policy needn’t be disclosed even if they become material. The insurers cannot thus refuse to renew the policy claiming an increase in the risk undertaking.
However, a breach of duty during the original negotiations as also that of the condition subsequent renders the policy liable to be invalidated, irrespective of the number of times it has been renewed.
• Renewal by mutual consent is necessary to allow for continuation of the policy
Such a provision as contained in the original contact of policy would imply that the renewal is equivalent to making a new contact
The insurers are thus free to refuse the renewal premium either absolutely or on a condition that a further stipulation is complied with.
The duty of disclosure necessarily reattches.All representations made at the time of entering into the original contract are deemed to be repeated on the renewal unless corrected. Further, in addition to disclosing those facts material at the time of ordinal negotiations, which have become material during the current period of policy, must also be disclosed.
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