Features of Life Insurance Contract

Human life is an income generating asset. This asset can be lost through unexpected death or made non functional through sickness or disability caused by an accident. On the other hand there is a certainty that death will happen, but its timing is uncertain. Life insurance protects against loss.

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 1938 by including annuity business. Since, the life insurance contract is not an indemnity contract; the undertaking on the part of the insurer is an absolute one to pay a definite sum on maturity of policy at the death or an amount in installment for a fixed period or during the life.

Features of Life Insurance Contract

Followings are the features of life insurance contract:

  1. Nature of General Contract
  2. Insurable Interest
  3. Utmost Good Faith
  4. Warranties
  5. Proximate Cause
  6. Assignment and Nomination

In life insurance contract the first three features are very important while the rest of them are of complementary nature.

1. Nature of General Contract

Since the life insurance contract is a sort of contract it is approved by the Indian Contract Act. According to Section 2(H) and Section 10 of Indian Contract Act, a valid contract must have the following essentialities:

  1. Agreement (offer and acceptance)
  2. Competency of the parties
  3. Free consent of the parties
  4. Legal consideration
  5. Legal objective
1.1 Agreement (offer and acceptance)

An offer or proposal is intimation to another of ones intention to do or to abstain from doing anything with a view to obtaining the assent of that other person to such an act or abstinence.… Read the rest

Role and Importance of Insurance

Insurance has become an integral aspect in everyone’s life today. It is a written contract of insurance that offers protection against future loss. The life insurance generally helps to insure the life of people. A definite compensation is provided by the insurer to the insured person. The non-life insurance provides financial support to people or companies and helps them to overcome the losses. The basic human trait is to be averse to the idea of taking risks. There is always an urge to minimize the risks and provide protection against possible failure. The risk includes fire, the perils of sea, death, accidents and burglary. Any risk may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance that provides reasonable degree of security and assurance that insured will be protected in the event of a calamity or failure of any sort.

The process of insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. Insurance not only serve the ends of individuals, or of special groups of individuals, it tends to pervade and transform our modern social order, too. The role and importance of insurance, here, has been discussed from an individual, business and society’s view.

Importance of Insurance to Individuals
  1. Insurance provides security and safety: Insurance provides safety and security against the loss on a particular event. In case of life insurance, payment is made when death occurs or the term of insurance expires.
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Insurance – Definition, Principles and Functions

Life is a roller coaster ride and is full of twists and turns. Insurance policies are a safeguard against the uncertainties of life. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured in case of life insurance. Insurance policies cover the risk of life as well as other assets and valuables such as home, automobiles, jewelry etc. On the basis of the risk they cover, insurance policies can be classified into Life Insurance and General Insurance. Life insurance products cover risk for the insurer against eventualities like death or disability. General insurance products cover risks against natural calamities, burglary, etc.

Insurance is system by which the losses suffered by a few are spread over many, exposed to similar risks. With the help of Insurance, large numbers of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance policy helps in not only mitigating risks but also provides a financial cushion against adverse financial burdens suffered.

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 ensure themselves against that risk.… Read the rest

About the Investments in Mutual Funds

Mutual fund companies [also known as Asset Management Companies (AMCs)] collect funds from public (mainly from small investors) and invest such funds in market and distribute returns/surpluses in the form of dividends. Surpluses can also be reflected in higher Net Asset Value (NAV) of the scheme. In simple words, a mutual fund company collects savings of small investors (pool their money); the fund managers of the concern invest such pool of funds to market (securities); when returns are generated from such investment, passed back to the investors.

This is how a mutual fund works. First an offer document (containing details of the scheme, its investment horizon and class(es) of securities it intends to invest etc.) is issued to the public. Then the collected money is pooled together to constitute a fund. This fund is managed by fund managers of AMC who take major investment decisions. A trust takes care that the mutual fund investments are in accordance with the scheme of the fund and is being managed in the interest of the investors. The returns from such investment activities are distributed in accordance with the scheme of the fund. NAV of a mutual fund (or in other words NAV per unit) refers to the total asset managed by the fund at its market value divided by the number of outstanding (issued and sold) units of the fund. For instance, a fund having net asset worth of Rs.100 crores and Rs.10 crore units are outstanding then the NAV per unit of the fund would be Rs.10.… Read the rest

Risk and Return in Investments

There are different motives for investment. The most prominent among all is to earn a return on investment. However, selecting investments on the basis of return in not enough. The fact is that most investors invest their funds in more than one security suggest that there are other factors, besides return, and they must be considered. The investors not only like return but also dislike risk. So, what is required is:

  1. Clear understanding of what risk and return are,
  2. What creates them, and
  3. How can they be measured?

Return: The return is the basic motivating force and the principal reward in the investment process. The return may be defined in terms of (i) realized return, i.e., the return which has been earned, and (ii) expected return, i.e., the return which the investor anticipates to earn over some future investment period. The expected return is a predicted or estimated return and may or may not occur. The realized returns in the past allow an investor to estimate cash inflows in terms of dividends, interest, bonus, capital gains, etc, available to the holder of the investment. The return can be measured as the total gain or loss to the holder over a given period of time and may be defined as a percentage return on the initial amount invested. With reference to investment in equity shares, return is consisting of the dividends and the capital gain or loss at the time of sale of these shares.

Risk: Risk in investment analysis means that future returns from an investment are unpredictable.… Read the rest

Barriers to Effective Communication in Business

Planning, preparation and practice of communication will be incomplete and unsuccessful unless one identifies and understands the barriers to effective communication. These barriers are physical, sociological and psychological obstacles that interfere with the planning, organization, transmission and understanding of the message. There are a number of such obstacles that can occur in the process of communication. The natural result of such obstacles or interfering factors is the misunderstanding of the message. These factors interfere with the self-confidence, self-disclosure and self-consciousness of the communication senders and receivers. The barriers to effective communication are dangers to any organization if they are not removed on time. When the communicator transmits the idea in an unchanged and un-distorted form to the receiver and the receiver responds to it, then, the process of the communication is supposed to have been perfect. But this process of ‘perfect’ communication can never exist due to the number of factors, which stand in its way as the barriers. The communicator has to identify and understand the reasons for poor communication in order to communicate effectively. Understanding the process of communication is the first step towards improving the abilities and skills of communication, but understanding the factors that prevent us in transmitting the exact meaning is very essential for effective communication.

Types of Barriers to Effective Communication

Effective communications will only happen if information is sent, received and them understood. It occurs when the clear message is sent by the sender through an appropriate medium who then gives feedback which shows that the message has been understood.… Read the rest