QUESTION 4: LIFE INSURANCE
Marks: 16
(a) DEFINITION OF LIFE INSURANCE
DEFINITION: Life Insurance is a contract between an insurer and a policyholder, whereby the insurer undertakes to pay a specified sum of money (sum assured) to the policyholder or their nominees upon the occurrence of a specified event, typically the death of the insured person or the expiry of a certain period.
KEY CHARACTERISTICS:
- • It is a contract of assurance, not indemnity
- • The sum assured is paid on the happening of the event (death or maturity)
- • Involves payment of regular premiums by the insured
- • Provides financial security to dependents
- • Has a savings and investment component in many policies
⚖️ LEGAL BASIS:
Under Section 2(11) of the Insurance Act, 1938, life insurance business includes the business of effecting contracts of insurance upon human life, including contracts whereby the payment of money is assured on death or on the happening of any contingency dependent on human life.
PURPOSE OF LIFE INSURANCE:
Protection of Dependents
Provides financial security to family members after the death of the breadwinner.
💡 Example: Mr. Sharma, the sole earner, takes Rs. 50 lakh life insurance. If he dies, his wife and children receive Rs. 50 lakhs to meet their future needs.
Savings and Investment
Many policies accumulate cash value and provide returns on maturity.
💡 Example: Endowment policies combine insurance with savings, providing maturity benefit if the insured survives the policy term.
Tax Benefits
Premiums paid and maturity amounts receive tax benefits under Income Tax Act.
💡 Example: Under Section 80C, premiums up to Rs. 1.5 lakhs per year are tax-deductible.
(b) TYPES OF LIFE INSURANCE
TERM LIFE INSURANCE
DEFINITION: A pure protection plan that provides life cover for a specified term. If the insured dies during the policy term, the sum assured is paid to nominees. If the insured survives, no benefit is payable.
FEATURES:
- • Lowest premium among all life insurance types
- • No maturity benefit - pure risk cover
- • High sum assured at affordable premium
- • Policy term can range from 5 to 40 years
💡 EXAMPLE: Mr. Kumar, age 30, takes a 30-year term plan for Rs. 1 crore with annual premium of Rs. 12,000. If he dies at age 45, his family receives Rs. 1 crore. If he survives till age 60, the policy ends with no payout.
WHOLE LIFE INSURANCE
DEFINITION: Provides life cover for the entire lifetime of the insured (typically up to age 100). The sum assured is paid to nominees upon the death of the insured, whenever it occurs.
FEATURES:
- • Lifetime coverage (usually up to 100 years)
- • Premium payable for limited period or whole life
- • Builds cash value over time
- • Can be used as collateral for loans
💡 EXAMPLE: Mrs. Patel, age 25, takes a whole life policy for Rs. 50 lakhs. She pays premiums till age 60. If she dies at age 75, her nominees receive Rs. 50 lakhs.
ENDOWMENT LIFE INSURANCE
DEFINITION: A combination of insurance and savings. Provides both life cover during the policy term and maturity benefit if the insured survives the term.
FEATURES:
- • Dual benefit - death benefit and maturity benefit
- • Policy term typically 10-30 years
- • Guaranteed returns on maturity
- • Loan facility available against policy
💡 EXAMPLE: Mr. Verma takes a 20-year endowment policy for Rs. 20 lakhs. If he dies during the term, nominees get Rs. 20 lakhs. If he survives 20 years, he receives Rs. 20 lakhs as maturity benefit.
UNIT LINKED INSURANCE PLANS (ULIPs)
DEFINITION: Insurance plans where a portion of premium provides life cover and the remaining is invested in market-linked funds (equity, debt, or balanced) as per the policyholder's choice.
FEATURES:
- • Market-linked returns - no guaranteed returns
- • Flexibility to switch between funds
- • Lock-in period of 5 years
- • Potential for high returns
💡 EXAMPLE: Mrs. Singh invests Rs. 1 lakh annually in a ULIP for 15 years. 10% goes towards life cover (Rs. 10 lakhs), remaining invested in equity funds. If markets perform well, corpus may grow to Rs. 25 lakhs.
OTHER TYPES: Money-Back Insurance, Pension/Annuity Plans, Child Insurance Plans, Group Life Insurance (features available in data files)
(c) DISTINCTIONS BETWEEN LIFE AND OTHER INSURANCE
1. SUBJECT MATTER
Life Insurance:
Subject matter is human life
Other Insurance:
Subject matter is property
2. PRINCIPLE OF INDEMNITY
Life Insurance:
NOT a contract of indemnity. Full sum assured paid regardless of loss.
Other Insurance:
Contract of indemnity. Only actual loss compensated.
3. INSURABLE INTEREST
Life Insurance:
Required only at inception, not at claim time
Other Insurance:
Required both at inception and claim time
OTHER KEY DISTINCTIONS: Duration (long-term vs short-term), Certainty of Event, Savings Component, Surrender Value, Tax Benefits, Grace Period, etc. (Complete details in data files)
QUESTION 5: MARINE INSURANCE
Marks: 16
📖 (a) VOYAGE POLICY
DEFINITION OF VOYAGE POLICY
A voyage policy is a type of marine insurance policy that covers the subject matter (ship or cargo) for a specific voyage from one place to another, regardless of the time taken.
⚖️ LEGAL BASIS:
Section 25 of the Marine Insurance Act, 1963 defines voyage policy: "Where the contract is to insure the subject-matter at and from, or from one place to another or others, the policy is called a voyage policy."
KEY CHARACTERISTICS:
- • Covers a specific voyage from origin to destination
- • Not time-bound - covers entire journey regardless of duration
- • Begins when ship leaves the starting port
- • Ends when ship reaches the destination port
- • Includes reasonable delays and deviations in ordinary course
FEATURES OF VOYAGE POLICY:
Specific Route Coverage
The policy specifies the voyage - from port A to port B. Cover is valid for that specific voyage only.
💡 EXAMPLE: Policy covers cargo from Mumbai to Dubai. The vessel is covered only for this voyage, not for any other route.
Not Time-Restricted
Unlike time policies, voyage policies cover the journey regardless of how long it takes.
💡 EXAMPLE: If voyage normally takes 10 days but takes 25 days due to storms, the policy still covers the entire journey.
Commencement and Termination of Risk
Risk begins when ship starts voyage from origin port and ends when ship reaches destination port and cargo is unloaded.
💡 EXAMPLE: Ship leaves Mumbai on Jan 1st (risk starts) and reaches Dubai on Jan 15th (risk ends).
TYPES OF VOYAGE POLICIES:
- • Simple Voyage Policy - Covers single voyage from one port to another
- • Return Voyage Policy - Covers both outward and return voyage
- • Port to Port Policy - From one specific port to another
- • Multi-leg Voyage Policy - Voyage with multiple stops/ports
⚠️ (b) DOES DEVIATION AFFECT INSURER'S LIABILITY?
DEFINITION OF DEVIATION
Deviation means departure from the voyage contemplated by the policy, whether in the route taken, the destination, or the manner of performing the voyage.
⚖️ LEGAL BASIS:
Section 46 of the Marine Insurance Act, 1963: "Where a ship, without lawful excuse, deviates from the voyage contemplated by the policy, the insurer is discharged from liability as from the time of deviation."
EFFECT ON INSURER'S LIABILITY:
GENERAL RULE: Unauthorized deviation discharges the insurer from ALL liability from the time of deviation, even if the loss is unconnected with the deviation.
CONSEQUENCE 1: COMPLETE DISCHARGE
Once unauthorized deviation occurs, the insurer is discharged from liability immediately and permanently. The policy becomes void from the moment of deviation.
💡 EXAMPLE: Ship insured for voyage Mumbai to Dubai deviates to Iran without excuse. Insurer's liability ends. Even if ship later sinks near Dubai due to storm, no claim can be made.
CONSEQUENCE 2: APPLIES EVEN IF LOSS UNRELATED
The deviation need not cause the loss. Even if loss occurs from a completely different cause, the insurer is not liable once deviation has occurred.
💡 EXAMPLE: Ship deviates to different port. Later, cargo damaged by fire (nothing to do with deviation). Insurer still not liable because deviation voided the policy.
CONSEQUENCE 3: STRICTNESS OF THE RULE
The rule is very strict. Even slight, deliberate deviation without excuse discharges insurer.
💡 EXAMPLE: Ship takes slightly longer route to avoid rough seas without permission. This deviation can discharge insurer if not legally excused.
WHAT CONSTITUTES DEVIATION:
- • Geographical Deviation - Taking different route than agreed
- • Deviation in Destination - Going to different port
- • Unreasonable Delay - Unjustified delay at intermediate port
- • Deviation in Manner - Change in manner of carrying goods
✅ (c) WHEN IS DEVIATION EXCUSED?
While unauthorized deviation discharges the insurer, the law recognizes certain circumstances where deviation is justified and does not affect the insurer's liability.
LEGAL BASIS: Section 47 of Marine Insurance Act, 1963 lists circumstances when deviation is excused. Section 49 provides for deviation for safety of ship or saving human life.
AUTHORIZED BY POLICY
Legal Provision: Section 47(a) - Deviation is excused where authorized by any special term in the policy.
If the policy itself permits deviation in certain circumstances or to certain ports, such deviation is valid.
💡 EXAMPLE: Policy states "Ship may deviate to any port in Arabian Sea for bunkers or repairs." Ship stops at Muscat for refueling - this is authorized deviation.
BEYOND CONTROL
Legal Provision: Section 47(b) - Deviation caused by circumstances beyond the control of the master and his employer.
When deviation is forced by circumstances that neither captain nor ship owner can prevent.
💡 EXAMPLE: Cyclone forces ship to take shelter in Karachi port instead of continuing to Dubai. This is excused as beyond control.
FOR SAFETY OF SHIP
Legal Provision: Section 49(a) - Deviation reasonably necessary for the safety of the ship or subject-matter insured.
When deviation is essential to save the ship or cargo from danger.
💡 EXAMPLES:
- Ship develops engine trouble, deviates to nearest port for repairs
- Severe storm ahead, ship takes alternative route to avoid danger
- Ship's hull damaged, deviates for emergency repairs
FOR SAVING HUMAN LIFE
Legal Provision: Section 49(b) - Deviation reasonably necessary for the purpose of saving human life.
Humanitarian obligation to save human life justifies deviation. NOTE: Deviation merely to save property (not life) is NOT excused.
💡 EXAMPLES:
- Ship receives SOS signal from sinking vessel, deviates to rescue crew
- Man overboard, ship stops and circles back to save him
- Medical emergency onboard, ship deviates to nearest port
OTHER EXCUSED CIRCUMSTANCES: Compliance with law (Section 47c), Barratry (Section 47d), Reasonable delay, Liberty clauses (details in data files)
🌊 (d) PERILS OF THE SEA
DEFINITION
Perils of the sea refer to fortuitous accidents or casualties happening on the sea, which are peculiar to navigation and not the inevitable action of wind and water.
⚖️ LEGAL BASIS:
Section 3(2)(c) of Marine Insurance Act, 1963 includes 'perils of the seas, rivers and lakes' as insurable perils.
ESSENTIAL CHARACTERISTICS:
- • FORTUITOUS NATURE - Event must be accidental and unforeseen
- • PECULIAR TO SEA - Must be specific to maritime navigation
- • NOT INEVITABLE - Must be extraordinary, not normal action of wind/water
- • EXTERNAL CAUSE - Must be external to ship, not ship's own defects
EXAMPLES OF PERILS OF SEA (COVERED):
1. STORM, TEMPEST, HEAVY WEATHER
Damage caused by severe weather conditions like storms, cyclones, hurricanes, or rough seas.
💡 Ship caught in cyclone in Bay of Bengal, cargo washed overboard by huge waves.
2. COLLISION
Ship colliding with another ship, rock, iceberg, or submerged object.
💡 Two ships collide in fog near English Channel, both suffer damage.
3. STRANDING AND GROUNDING
Ship running aground on shore, rocks, or seabed.
💡 Ship strands on reef during high tide, hull damaged.
4. SINKING AND CAPSIZING
Ship sinking due to taking in water or capsizing due to instability.
💡 Ship capsizes in rough seas due to cargo shifting, entire vessel and cargo lost.
WHAT IS NOT PERILS OF SEA (EXCLUDED):
- • ORDINARY WEAR AND TEAR - Normal deterioration from routine voyage
- • INHERENT VICE - Damage from nature of goods themselves (e.g., fruits rotting)
- • NORMAL ACTION OF WIND/WATER - Expected effects of sea
- • DELAY - Mere delay in voyage, even if causing loss
- • UNSEAWORTHINESS - Loss due to ship being unfit for voyage
- • RAT DAMAGE - Damage by rats or vermin not peril of sea
⚖️ IMPORTANT CASE LAWS
Q4: Life Insurance Corporation v. Asha Goel (2001) 2 SCC 160
Principle: In life insurance, insurable interest must exist at inception. Life insurance is NOT indemnity - full sum assured payable.
Q5: Hamilton Fraser & Co. v. Pandorf (1887) 12 App Cas 518
Principle: Rats gnawing through pipes causing ship to sink is NOT peril of sea - ordinary incident of voyage.
Q5: Sandar Lal Jethalal v. GIC AIR 1971 Bom 343
Principle: Deviation from contracted voyage, unless excused, discharges insurer from liability.