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The Principles of Life Insurance include the Indian Contract Act 1872,where the principles of utmost good faith (uberimma fides), and the principle of insurable interest. They can be further explained as : a) Principle of Utmost Good Faith -One party (the proposer) is considered to be in possession of all the facts on which the liability of the insured will be based. The insurer must generally rely on the proposer for knowledge of these facts, which will include family history, personal medical history, occupation and habits. As a rule, life insurance is not a yearly contract. It is entered into for a term of years, with an option to renew or terminate at each premium due date. This option is available only to the policyholder therefore creating an unequal position that has to be addressed in any form of contract. Thus, the principle of uberimma fides on the part of the proposer is of the utmost importance to the negotiations in life insurance. Utmost good faith likewise also applies to the insurers. This principle applies also to the duty of disclosure regarding its duration to life insurance and material facts which must be disclosed and those which need not be disclosed. In general, failure to exercise the utmost good faith enables the aggrieved party (the party which shall suffer an unjust financial loss), to repudiate (cancel) the contract or to treat it as null and void ab initio (right from the beginning). Although the contract is binding on both parties alike, it usually arises out of the conduct of the proposer, or insured. In this Duty of disclosure could be further explained as- an insurer must disclose the precise terms and conditions of the contract that he offers, and must not take advantage of the ignorance of the proposer. It is the duty of the proposer to disclose, clearly and accurately, all material facts related to the proposed insurance. It is a positive, not a negative duty. It is confined, however, to matters of fact and does not include matters of opinion b) PRINCIPLE OF INSURABLE INTEREST Everything can be insured but all risks are not insurable until they have certain characteristics. A Risk becomes insurable if it has the following characteristics: It must be a pure risk. That is, the event occurred shall result in a finan cial loss as distinguished from a speculative or dynamic type of loss where the outcome may be a loss or a profit. There must be a fortuitous or accidental element involved. Accidental damage to motor vehicles can be insured but normal wear and tear to the motor is not insurable The loss must be financial and not emotional. That is, it must be measured in terms of money. Assets such as machinery, building, stocks are insured on the basis of their intrinsic (economic) value. In case of personal accident insurance, the value of human life cannot be measured. Hence, policies are issued on the basis of specific sum assured depending on the earning capacity, and other financial underwriting at the time of acceptance of proposal. The contract should have a legal object. This is one of the conditions essential for a valid contract. A professional indemnity policy issued to a medical practitioner shall not protect him for professional misconduct or malpractice, as that would be contrary to law. A personal accident policy excludes death or disability caused by intentional self injury, suicide or attempted suicide, as these are offences punishable under the Indian Penal Code. The risk must not be against public policy. A motor vehicle insurance policy cannot be available to pay for fines for traffic offences. Public policy means a set of moral and social principles or rules, observance of which is recognized to be necessary in a well ordered society. The risk must not be such that it may cause high catastrophic losses. Eg. War and kindred risks and nuclear risks are excluded from all policies in respect of property on land since such losses are considered to be beyond the capacity of commercial insurance.

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3) Procedure of settlement of claims in Life insurance 4) settlement of claims if the Life is insured 5) Procedure of underwriting in a new biz 6) Life Insurance benefits depend on the contingency of death or survival. It also involves a saving component along with the death coverage. In addition, the insurer has to recover his expenses through the premium paid by the policyholders. Hence, three elements are important in computation of life insurance premium. They are:a) Mortality b) Interest c)Expenses, including any loadings The loadings include any extra provision made by the insurer towards bonus, guaranteed benefits or options provided by the policy. Mortality is known as the probability of a person aged x dying before attaining age (x +1) years of age. The rate of mortality of a group of persons at a given age can be found out by observing a large group of persons at the said age for a period of one year and recording the number of persons of that group dying before reaching the next age. The insurer observes the mortality experience of his own policyholders by classifying them into homogeneous groups with respect to mortality, and if his own data is unavailable; he may depend on external mortality experience. The results of the study of the mortality of group of people are summarized in the form of tables called Mortality tables. 7) Objectives of Underwriting 8) The principles of Underwriting 9) objectives of pricing life insurance 10) Mortality and mortality tables 11) Premium calculation 12) The steps in Premium calculation 13) Terminal bonus 14) Interim bonus 15) The components of premium structure

16) The insurance policy is a property. It is an estimable claim as per the Transfer of Property Act, 1982. An insurance policy is part of the estate of the life assured and can be sold, mortgaged, charged or gifted.Section 130 and 131 of the Transfer of Property Act lays down the procedure for such transfer. In assignment, rights in the policy are transformed by the Policyholder, to the assignee as per section 38 of the Insurance Act,1938 which has described the procedure to be followed for such assignment. Assignment can be done by endorsement on the policy or by a separate deed. If the assignment is done by endorsement as a policy, no stamp is required. But if it is done as a separate deed, it should be stamped. The transferer or a duly authorised person must sign the assignment. The signature must be attested by a witness.The assignment is immediately effective as soon as it is done and executed.

The original assignment has to be sent to the insurer with a notice.The person making an assignment should have the exclusive right in the policy. The assignor must be a major and competent to contract.An assignment once made cannot be cancelled or altered. The assignment must be for the full S.A. and not for a part of the amount.There should be some consideration for assignment. If the assignment is made in favour of a bank for a loan taken, the loan is a consideration and irrespective of the loan amount, the policy for the full sum assured has to be assigned in favour of the bank. Assignments are of two types 1) Conditional assignment and 2) Absolute assignment. 17) The obligation of the insurance company is to pay the Sum assured (S.A.) is subject to premiums being paid regularly within the days of grace. If the premium is not received within the days of grace, it is a default on part of the policyholder and the insurance company can refuse to pay the claim on the ground that the policy has lapsed and the insurance company forfeits the premium paid under the policy. In practice, insurance companies do not forfeit the premium paid under the policy if a minimum number of years premiums have been paid. If a minimum of three years premiums are received under the policy, the insurance act does not allow such forfeiture because every policy acquires a reserve as a result of Premiums paid during the earlier years of the policy are higher than those actually required. The savings element during the year policy conditions provide a number of safeguards to policy holders, which are called no forfeiture provisions. One provision is to return a part of the premium paid under the policy as surrender value or cash value. The Insurance Act, 1938, section 113 provides that every policyholder gets the minimum guaranteed surrender value if three years premium are received under the policy. 18) Surrender value is available only after three years premiums are paid, because the first year premium amount goes out in expenses. The commission amount paid to the agent is higher for the first year. Only a small part of the second years premium is left after all outgoings. After three years, the accumulated amount is higher and hence the surrender value can be paid out of the accumulated amount. The other non-forfeiture options are y Paid up value y Keeping the policy in force through premiums adjusted from the surrender value. Providing term insurance cover from surrender value 19) Comparision between Nomination and Assignment Nomination Assignment 1. Nomination can be done at proposal stage. Assignment has to be done after the policy document is received by policyholder. 2. Nomination cannot be done on a separate Assignment can be done on separate paper paper. with appropriate stamp . 3. Nomination can be done only by life Assignment can be done by life assured, also assured. assignee. 4. Section 39 of Insurance Act, 1938 has Assignments can be done anywhere as per regulated nominations in India and where the Section 38 of Insurance Act, 1938. act is applicable.

5. In case of nomination, the life insured has full control on policy and can be changed any time without consent of nominee. 6. No consideration is required as it is not a separate contract. 7. Nomination can be challenged in the court of law. But nominee has no right to sue under policy. 8. No vested interest is created in favour of nominee. 9. Nominee has right to receive policy money only in case of death of L.A. before maturity 10. In case of death of nominee, the right of nominee to receive money is automatically cancelled 11. Creditors of life assured can attach the policy money

Assignment once made, the assignee gets full right on the policy and assignment cannot be changed or cancelled. Assignment requires consideration as per provision of the contract act. Assign has right to sue under policy.

Assignee acquires interest in policy. The assignee gets legal right to receive policy money in case of death or maturity. In case of death of assignee, the right is shifted to legal heir of assignee. Creditors of the life assured cannot attach policy money unless the creditor proves in the court that the assignment has been made to defraud the creditors.

20) The insurance company allows certain alterations in the policy to policyholders. Some alterations are very simple in nature. Any type of alteration, where the risk of the insurer is increased is not allowed by the insurance company, like, the policyholder cannot increase the sum assured under the policy. If the policyholder wants to increase the sum assured, he has to take a separate, additional insurance policy with all the formalities for new insurance. The term of insurance also cannot be increased under the policy. The alterations, normally allowed are y Change the mode of payment from one form to another like quarterly to half yearly or yearly, etc. y Without profit polices can be contorted into with profit policies. y The policyholder can reduce the term of the policy. A 25 year policy can be reduced to 20 or 15 years. y The sum assured under the policy can be reduced. If the policyholder is not in a position to keep his policy in force for some financial problems, he can reduce the sum assured. If the policy is for 1 Lakh; it can be reduced to 50,000 S.A. The balance 50,000 can be either surrendered or kept in the paid up condition. The policy can be split up into pieces. If the policyholder has taken a policy for one lakh and he wants two policies of 50,000/- each, these can be changed into two. The insurance company will issue two separate policies. Policy preparation charges will have to be borne by the policyholder. 21) Nomination is a simple method by which a policyholder can make arrangements for the payment of the policy money to another only in case of the policyholders death. As per section 39 of the Insurance Act, 1938, a life assured can nominate a person to receive the policy money in the event of the assureds death. Nomination can be made at the time of proposal or anytime thereafter after the policy document is received. A nomination can be changed any time by the policyholder without the consent of the previous nominee. A nomination can be done by an endorsement on the policy or even on a separate sheet of paper

to be pasted on the policy document with the signature of the policyholder. The nomination is automatically cancelled if the assignment on the policy is made subsequently. An assignee cannot make a nomination in the policy. A nomination once cancelled cannot be reverted back to even if the policy is reassigned to the policyholder by the assignee. In such a case, a fresh nomination has to be made in favour of the same nominee again. Nomination gives the right to receive the policy money in case of death of the policyholder. A nominee has no legal right to receive the policy money. The nominee can give a valid discharge in the insurance company about the receipt of the policy money as a trustee of the money. If any legal heirs claim the money, it will have to be handed over to the legal heirs as per the instructions of the court.A nomination can also be done in favour of a minor child. But the name of an appointee or guardian with the address has to be mentioned in the policy and the consent of the guardian is necessary. In case of the death of the policyholder when the nominee is still a minor, the money will be given to the guardian. The nomination can be made in favour of two or more persons jointly or to the survivors on the date of payment. In case of the death of the nominee before the maturity of the policy, the nomination is automatically cancelled and the life assured can make a fresh nomination. Nomination is not necessary in case of joint life policies as there is one survivor in the case of one's death. But nomination can be jointly done by both the lives assured in favour of a nominee in case of death of both lives simultaneously 22)