Life Insurance Legal Principles

A life insurance policy is an contract or policy signed between an insured and an insurer.

In terms of law there are 5 things one needs to know for a contract which are as follows:

• Offer & Acceptance
• Consideration
• Capacity to contract
• Insurable Interest
• Consensus ad idem, which in English means a Conesus of agreement.

Offer & Acceptance: In English law there is a offer and acceptance contract. This means that one party makes an offer and another accepts that offer without qualification. If qualification is being asked upon acceptance then it becomes an alternative offer. Also there is something called as invitation in terms of law. This invitation is considered as a form of advertisement. Insurers issue out their prospects & brochures making them just an advertisement method to attract consumers. In life insurance the insurer usually makes an offer to contract by telling the insured that he has accepted the proposal and willing to offer insurance at a set sum, based on the policy and subject being paid. After that the insured accepts the offer when he pays up the first premium. Generally life insurer makes their offer, such as to make it pay the first premium by a certain date until which the life insurer should be in a steady state of health. If before you pay your first premium amount your health deteriorates then life insurance contract may not be valid.

Consideration: Consideration should be considered on both sides. This applies to all contracts which are not under seal. The insured consideration is first payment of the premium and insurer’s consideration is offer to pay out the sum the life insured dies during policy.

Capacity to contract: Both the insurer and insured should have the capacity to contract with each other. Persons under the age of 18 years are not allowed to enter into a contract and even if they are it is subject to certain restrictions upon them under the Family Law Reform Act 1969.

If any contract is signed with a person of unsound mind insurer can not enforce a contract against them if he was not unsound at the time when the insurer contracted them. Under the Mental Health Act 1983 the affairs of person of unsound mind can be placed under the hands of court protection.

Insurable Interest: The person who is taking out policy must have a insurable amount called insurable interest in the life insured. Before 1774 this was not the case as people were taking out insurance policies on famous or notorious people as a type of gambling. The life insurance Act 1774 put a stop on it. Now the act requires the proposer to have an insurance interest in their life insured and level of insurance they are taking should not exceed value of insurable amount.

Conesus of Agreement: In this law both the parties the insurer and insured must be in an agreement about what they are contracting. The original idea for this came into effect when long back ago one party was selling a boat and another person was buying a boat. But coincidently there were two boats with the same name and each party thought that other was talking about a different boat. In terms of law it is called as idea of ‘utmost good faith’. This means that insured has all the knowledge and details about themselves and insured has none. So the insured has the duty to advise the insurer of all the facts.