Fundamental principles of Life Insurance

The essential elements that are required for creation of a valid contract such as offer and acceptance, competence of the parties to contract, free consent of the parties, legal object and lawful consideration, are applicable to life insurance contract too. In addition to these, the life insurance contract should be based upon two important principles viz., utmost good faith and insurable interest. The first fundamental principle is offer and acceptance. The offer is an intimation of proposer’s intention to buy life assurance. The offer in life assurance is called proposal. The second fundamental principle is capacity of parties. Minors, persons of unsound mind and enemy, aliens cannot affect assurance. Similarly only those insurers can grant policies, which are licensed by the IRD Authority. Other fundamental principles are free consent, legality of object, consideration, utmost good faith and insurable interest.