FAQ on Insurance


Lawyer

Please find the answers to certain common questions relating to Insurance.

Q: What do you mean by insurance?

Insurance is defined as a co-operative device to spread the loss, caused by a particular risk, over a number of persons who are exposed to it and, who agree to insure themselves against that risk. Risk is the uncertainty of a financial loss. It is not to be confused with the chance of loss, which is the probable number of losses out of a given number of exposures. It must not be confused with peril, which is defined as the cause of loss. Neither should it be confused with hazard as this is a condition that may increase the chance of loss. Finally, risk must not be confused with loss itself. Loss is, in fact, the unintentional decline in or disappearance of value that arises from a contingency. Wherever there is uncertainty with respect to a probable loss, there is risk

 Which laws govern insurance contracts?

The foundation of the law and practice of insurance contracts lies in the common law principles, pronounced in English cases. In India, only the Union Parliament can make laws relating to insurance. The main laws, applicable to the insurance business, are as follows:-

  • Insurance Act, 1938;
  • The Life Insurance Act, 1956;
  • The General Insurance Business (Nationalization) Act, 1972;
  • Insurance Regulatory and Development Authority Act, 1999;
  • Public Liability Insurance Act, 1991;
  • The Motor Vehicle Act, 1988;
  • The Marine Insurance Act, 1963;
  • Apart from these, the principles of the Indian Contract Act, 1872;
  • Hindu Succession Act, 1913;
  • Indian Stamp Act;
  • Transfer of Property Act, 1872.
As the law of insurance is not exhaustive, in the case of interpretation of the enactments, reference has to be made to the common law principles that are laid down in judicial decisions.

What is the nature of a life insurance contract?

A life insurance contract may be defined as the contract, whereby the insurer, in consideration of a premium, undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period. The definition of the life insurance contract is enlarged by Section 2 (ii) of the Insurance Act by including annuity businesses. Since then, the life insurance contract is not an indemnity contract. The undertaking on the part of the insurer is absolute and he must pay a definite sum on maturity of policy at the death or, an amount in installment for a fixed period or during the life.

What is an insurable interest?

For an insurance contract to be valid, the insured must have an insurable interest in the subject matter of insurance. The insurable interest is the pecuniary interest, whereby the policy-holder is benefited by the existence of the subject matter and is prejudiced by the death or damage of the subject matter. The subject matter is life in the case of life insurance; property and goods in property insurance; and, liability and adventure in general insurance. Insurable interest is essentially a pecuniary interest, i.e. the loss, caused by the happening of the insured risk, must be capable of financial valuation.

What is the effect of nomination in insurance law?

S. 39 of the Insurance Act, 1938 provides that an insured may nominate a person as the nominee. The effect of such nomination is that the nominee is to be paid the amount of the policy on the occurrence of the event of the death of the insured. The object of the section is to give the nominee the power of receiving the money under the policy from the insurer, without prejudice to the decision of any question of title thereto. As a nomination, as provided in this section in respect of a policy of life insurance, confers no right on the nominee during the lifetime of the insured, it confers on him a bare right to receive the policy money on the death of the insured, and to give the insurer a good discharge.

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