Life Insurance

Unit III
Nature & Scope
• Life insurance is a contract to pay a certain sum of money to the nominee of
the policy in case of death of the insured or to pay a certain sum to the
insured in case he survives after a certain fixed period.
• It may be defined as a contract in which one party agrees to pay a given sum
upon happening of a particular event contingent upon happening of a
particular event contingent upon the duration of human life.
• It is the insurable interest which makes the contract of insurance valid &
enforceable, otherwise the contract would be wager & hence void.
• The time when such insurable interest must be present is at the time of
conclusion of contract, i.e., at the time of commencement of policy although
it is not necessary afterwards even at the time of occurrence of the risk.
• In LIC of India v. Asha Goel, it was held that the contract of insurance
including life insurance are contracts of uberrimae fides & every fact of
material must be disclosed otherwise there is a good ground for
rescission of contract. The duty of disclosure of material fact continues
right up to the conclusion of contract to the arising of risk.
• In life insurance, the subject matter of insurance is human life which has
no economic value but only a juridical value & is invaluable in terms of
money. While in other insurance, the subject matter is either movable or
immovable property securing economic & pecuniary interest.
• Life insurance is not an indemnity contract.
• Subject matter of life insurance is human life & event insured is death
which is certain event bound to happen sooner or later. The uncertainty
lies only in the time when it occurs.
Kinds of life insurance

Life Insurance may be classified based on:

• Duration of insurance
• Profit sharing
• Payment of sum assured
• Payment of premium
• Number of assured
It may be classified as follows:
• Whole life insurance
• Endowment insurance
• Term insurance
• Special life policy
Whole life insurance

• This is the original & normal form of insurance in which the assured has to pay fixed premiums
periodically throughout his life. The policy amount is payable on the assured’s death to his
nominees or assignees.
• This insurance intends to benefit the family members of the assured which they get as savings by
the insured. Since the policy covers the whole life of the assured, hence called as whole life
insurance.
Advantages:
• economic security to the dependents.
• Discharge liabilities after death
• Lower premium rates
Disadvantages:
• Payments throughout life period
• Payments in old age becomes difficult
• Assured need not get opportunity to use sum.
• Policy benefits after the death of assured.
Suitability:
• When assured has to provide for dependents.
• When assured wants to meet liability after death
• When assured’s source of income continues even during old age.
Types of Whole life policies:
• Ordinary Whole life policy
• Limited payment Whole life policy
• Single premium Whole life policy
• Convertible Whole life policy
• Anticipatory Whole life policy
Ordinary Whole life policy
• Policy is issued for whole life & premium is payable throughout the life of
assured. Also known as straight Whole life policy.
• The premiums remain level throughout the policyholder's life, meaning they
do not increase with age.
• It does not expire after a certain period, and there is no need for renewal.
• Because it offers lifelong coverage and cash value accumulation, the
premiums are generally higher.
• The death benefit is usually tax-free for beneficiaries, and the cash value
grows on a tax-deferred basis.
• The mode of payment of premium shall be yearly or half yearly.
Limited payment Whole life policy
• The assured is required to pay a premium for a limited period of time up to
retirement or till death if it occurs within the period.
• If he survives the whole of the insured period, no further premium is required to be
paid.
• But the assured sum becomes payable after his death, to the legal representatives,
nominee or assignee.
• Since the payment duration is shorter, the premium amount is higher than an
ordinary whole life policy but offers financial relief in later years.
• The policy is suitable for Individuals who want lifetime coverage but prefer to finish
premium payments early, people who want to secure their future income and estate
planning and People close to retirement who do not want to pay premiums in later
years.
Single premium Whole life policy
• This is an extreme form of limited payment life insurance.
• The sum assured is payable by a single premium. It is payable on the death of the
insured to the assignee or legal representatives.
• The policy is suitable where insured gets a windfall of income & wants to secure it
to invest for himself.
Convertible Whole life policy
• This is a policy under which the assured is given an option to convert the whole life
policy after 5 yrs to any other policy.
• Once converted, the policy provides coverage for life. After conversion, the
premiums increase as it transitions to a whole life plan.
• The policy is suitable for Young professionals who want affordable coverage initially
but plan to upgrade later and Individuals who expect their income to grow in the
future and can afford higher premiums later.
Anticipatory Whole life policy
• It has common features of limited payment policy & anticipatory
endowment policy.
• The insured can get certain amount of the insured sum during his life, in
addition to providing for economic security to his family.
• Insured sum is payable after the death of the assured. If death occurs
before maturity, the whole sum is paid to the legal representatives.
• The policy is suitable for Individuals who want insurance coverage along
with periodic payouts for retirement, education, or financial planning &
policyholders looking for financial security while ensuring their family
receives a death benefit.
Endowment life policies
• These type of policies are issued for a specified period of time & the
premiums are payable for such periods. If death occurs during the
time of policy, the policy is deemed to be matured & claim is paid to
the nominee.
• Rate of premium will be comparatively higher since it is issued for
short period.
• Kinds include: ordinary endowment policy, pure endowment policy,
joint life endowment policy, double endowment policy, marriage
endowment policy, education annuity policy, children deferred policy,
progressive protection policy, multi purpose policy.
• Ordinary endowment policy: the policy is issued for a specified period of time.
Premium is payable for the whole period of insurance or till death whichever is
earlier. On maturity, the sum assured together with profits is payable to the
assured. In case if assured survives after maturity of policy, no premium is to
be paid. Suits for whom the income source remains for specified period only &
those who want to provide economic security to family.
• pure endowment policy: provides a lump sum payout to the policyholder if
they survive the policy term. it does not offer a death benefit unless the
insured survives until maturity. Upon survival, the insured gets the sum assured
+ any bonuses as per the policy terms. maturity amount is usually tax-free. It
may be with or without return of premium. It suits best for who want
disciplined savings for future goals like retirement, education, or marriage or
low risk assured returns or a safe investment plan with a guaranteed payout.
• joint life endowment policy: it is a policy issued in the lives of 2 or more
persons like spouses, partners etc. Sum assured is payable on the maturity
of policy. In case any of the policyholder dies before the maturity of policy,
claim is paid to the surviving member.
• Double endowment policy: if death occurs before the maturity of the
policy, sum assured is paid to the nominee immediately. In case if
survives, double the amount insured is payable.
• Marriage endowment policy: object is to provide funds for children at the
time of marriage. A certain amount insured is payable after a certain
period of time. On maturity, insured sum is payable to the child nominee.
In case if parents die before maturity, no premium need to be paid.
• Education annuity policy: this is similar to marriage endowment but it covers the benefit
of children’s education.
• Children deferred endowment policy: The policy is bought by a parent or guardian for
the benefit of the child. The parent pays regular premiums until the child reaches the
maturity age. At the maturity the sum assured & bonus if applicable is payable. If parent
dies before maturity, no further premiums. If child dies, parents get the amount.
• Progressive protection policy: The policy starts with a basic sum assured at the time of
purchase. The sum assured automatically increases at fixed intervals (e.g., every 5
years) without requiring a medical check-up.
• Multi purpose policy: a flexible insurance plan that combines life insurance, savings,
investment, and other financial benefits into a single policy. It is designed to meet
multiple financial needs, such as protection, retirement planning, education funding, or
wealth creation.
Term policy
• It provides security of life for a specified period only. The sum assured
is payable on occurrence of death, during the tenure of policy.
• No claim is payable if assured survives for the specified period of
time.
• It has only element of security & not saving/ investment. It has no
paid up value & premium rate is very low.
• The policy suits best for who desire security for a small period of time
& for those who desire to stand guarantee against any debt.
• Kinds include: Convertible term assurance policy, decreasing term
policy, renewable term policy, 2 yr temporary term policy.
Convertible term assurance policy:
• This policy can be converted into limited payment whole life policy or endowment
policy within a specified period of effecting the policy.
• No medical examination or new proposal form is required for conversion.
• Premium is payable for the whole insured period/ death before maturity.
• Not issued to individuals above 40+ or people in risk involved jobs.
Decreasing term policy
• Sum insured decreases every yr at a particular rate & by maturity, it decreases to nil.
• Rate of premium also decreases.
• The policy is opted for paying off debts by instalments or keep policy for security
against debt.
• In case debtor dies during the policy, money is paid to the creditor to the
extent of debt.
• In India it is known as Mortgage Redemption policy.
Renewable term policy
• Renewable facility is available.
• If assured desires, maturity period can be extended
• Premium will be increased on extension of maturity period.
2yr term policy
• The policy offers life cover for 2 years only. Ideal for those with temporary
insurance needs, like a short-term loan, a gap before a long-term policy, or
limited-time financial responsibilities.
• It pays a death benefit to the nominee if the insured person dies within the
2-year term. No maturity benefit is provided if the person survives the term.
Special life policies
• LIC issues certain special life time policies from time to time. The important among
them are:
Money back policy:
• This is the most popular & insured can get back a portion of sum assured after a
specified period.
• If the assured survives for a 20yr period policy, 20% of sum assured at the end of
5th, 10th, and 15th year. The remaining amount with bonus will be recived at the
time of maturity of policy.
• In case if assured dies during the policy, Full sum assured + bonus, regardless of
earlier payouts.
• The policy is suitable for people with limited income who wants to meet expenses
like education, marriage etc.
Jeevan Akshay:
• It is aimed at employees who retire either without pension or very insufficient
pension. They can make use of this policy to get sufficient provision for pension.
• It makes arrangement for pension payable monthly to the assured.
• In case of death, premium paid together with bonus is payable to the legal
representatives.
• No medical examination is required.
Jeevan Shanti:
• Only a one-time premium is paid at the time of policy purchase.
• The annuity starts after a deferment period chosen by the policyholder, ranging
from 1 to 12 years.
• If the policyholder dies during the deferment period, the purchase price is
returned to the nominee. In the Joint Life option, the annuity continues to the
spouse after the first death, and the purchase price is paid to the nominee after
both pass away.
• No medical examination.
• The plan offers guaranteed regular income for life after the deferment
period. The annuity amount is fixed at the time of purchase and is not
affected by market fluctuations.
Pradhan Mantri Vaya Vandana Yojana:
• a pension scheme for senior citizens. The policy requires a lump sum
investment (purchase price). The pension is paid either monthly,
quarterly, half-yearly, or yearly, depending on the option selected.
• The policy term is 10 years. Pension starts immediately after purchase.
• In case of the policyholder's death during the policy term, the entire
purchase price is returned to the nominee.
• No medical examination. Suits best for senior citizens.
Bhima Jyoti:
• This policy is best suited for risk-averse individuals who want guaranteed
savings along with life cover, such as salaried professionals, parents, and
conservative investors.
• It offers life cover along with guaranteed returns, making it a low-risk
savings option.
• The plan is available for terms of 15 to 20 years.
• On death during the policy term, the nominee receives Sum Assured on
Death with Guaranteed Additions.
• Bhima Ratna:
• It provides periodic survival benefits, death cover, and lump sum maturity
benefit.
• Offers survival benefits (money-back) during the policy term. Suitable for
people seeking liquidity + insurance, such as salaried individuals or those
planning for children's education/marriage.
• If the policyholder dies during the term Sum Assured on Death + Guaranteed
Additions.
New Pension Plus:
• Premiums can be paid as Regular or Single Premium. They are invested in
LIC's approved funds (debt/equity mix).
• In case of death during the policy term, Higher of the fund value is paid to the
nominee.
• Returns depend on the performance of selected funds. Partial withdrawals
not allowed.
• Best suited for individuals looking to plan for retirement through disciplined,
long-term investment with market-linked growth.
Formation of life insurance contract
Filling up proposal form:
• this is the first step where the insurer can ascertain the exact nature of risk to
be assessed & covered.
• Personal details, premium & sum assured, nominee, history of diseases etc.
are to be filled in the form.
• Whatever answers given in the form are the basics to the contract. Exact
fulfilment of stating truth is a stipulation fundamental to enforceability.
Declaration by the proposer:
• At the end, the applicant has to declare that he warrants the truth of the
statement made in the proposal form to the best of his knowledge & no
information is concealed.
Submission of age proof:
• It is necessary for insurance contract. It is required for 2 purposes: to
confirm that the proposer is major & secondly to fix the premium rate.
Presentation of proposal to agent:
• The agent, on receipt of proposal, checks it thoroughly whether any
important information is left out without furnishing.
Medical examination:
• The insurer arranges for the medical examination usually at an
authorized diagnostic center. The center shares reports directly with the
insurance company. Based on the results, the insurer may approve,
decline, postpone or increase the rate of premium.
Report by agent:
• After medical report, the insurance agent does submit a confidential
report to the insurance company — it’s called the Agent’s Confidential
Report (ACR).
• It provides the insurer with background information about the proposer.
• It includes agent’s impression on the person’s financial status, lifestyle &
trustworthiness.
Scrutiny of proposal:
• The branch office, after receipt of reports & proposal form arranges for
verification.
Depositing premium:
• The branch issues first premium notice to proposer. On depositing, branch
takes further steps.
Registration:
• Once the premium is deposited, proposal is registered with LIC. A
registration number is allotted.
Final decision:
• On completion of all steps, final decision is taken by divisional office in
view of the proposal by branch office & 1st premium paid.
• LIC signifies his assent by a letter of acceptance. It should be absolute &
unqualified & in same terms as offer.
Issue of acceptance/regret letter:
• If the proposal is accepted, intimation regarding acceptance of
proposal is sent to proposer. Otherwise, a letter of regret is sent.
• Acceptance of proposal is an evidence of conclusion of contract.
• The risk commences from this date.
• Issue of insurance policy:
• Having completed all formalities, Corp. prepares insurance
policy & send it to insured. The overleaf of policy contains all
terms & conditions & details of policyholder.
Effective date
• In National Insurance Co Ltd. V. Deivam (2009), cheque towards premium has
been drawn & dispatched by bank on 02.03.1992 for payment of premium &
accident occurred on 03.03.1992. the co. denied the claim on the ground that
policy was obtained after the date of accident. It was held that in view of s.
64 (v) (B) (2) of Insurance Act 1938, policy became effective on date when
cheque has been drawn & posted, therefore insurance company was liable
to pay compensation to the claimants. Even if policy has been prepared after
accident, it could be said that valid premium has been paid by owner prior to
the accident.
• But in Elsa Tony Philip v. LIC, the court held that mere acceptance of cheque
& encashment thereof is not sufficient for formation of contract where
insurance co. has neither signified acceptance offer nor issued policy.
• In LIC Mumbai v. Krishna Devi, the husband of plaintiff took a life insurance
policy for Rs. 1 lakh. All the formalities were complied with & first premium was
paid. On 18.12.1984 the corp. issued a receipt of first premium of Rs.10,360. the
husband died on 11.01.1985. due to sudden shock & grief, the wife(nominee)
was not in a stable mental condition to inform the corp. regarding his death. It
was only informed on 04.09.1985 by letter & on 05.04.1986 she sent a letter to
Branch manager claiming the assured amount.
• The corp. by its letter dated 16.08.1986 denied the claim stating it was not a
concluded contract, as the proposal was under scrutiny & in meantime the
insured died.
• The trial court & HC decided the in favour of plaintiff stating that encashment of
first premium concluded the insurance contract & on the date of death, there
was a binding contract between the insurer & insured.
Conditions for issuing policy to
Males
• Minimum age: Usually 18 & Maximum age: Varies between 60–75 years
• Male applicants are specifically assessed for: Smoking / tobacco use, Alcohol
consumption, High-risk hobbies. These factors can lead to higher premiums
or coverage limits.
• Occupation plays a role. Riskier jobs may be charged extra premium or be
denied term coverage in some policies.
• In general, males may have slightly higher premium rates than females. It
may depend upon Age, Sum assured, Policy term, Medical condition,
Smoking status.
• Full and honest disclosure of Medical history, Family history, occupation &
income.
Conditions for issuing policy to
Females
• Minimum age: Usually 18 & Maximum age: Varies between 60–65 years
• Pregnancy status – Insurers may postpone issuing a policy if the applicant is
pregnant beyond a certain stage
• Gynecological history – Questions about menstruation, surgeries (e.g.
fibroid removal), abortion, infertility treatments, etc., may be asked. Family
medical history – Includes cancer (especially breast/ovarian) and
hereditary conditions.
• Female applicants are asked about:Smoking or alcohol consumptionHigh-
risk activities
• Generally, females enjoy slightly lower premium rates than males because
Women have higher life expectancy & Lower involvement in high-risk jobs
Event insured against in Life
Insurance
• The event insured against in ordinary life insurance is the death of life
assured arising from disease or accident.
• It is immaterial whether the death is caused by natural/accidental causes/
even due to criminal act of third party.
• 2 exceptions have been laid down: (i) where death is caused due to violation
of criminal law by assured himself (ii) where death is result of suicide.
• In Amicable Insurance Society v. Bolland, where a person is sentenced to
death for committing murder of another person& loses his life in execution
of sentence. It was held that all persons on whom the right to recover
devolves by operation of law & who claim through such a convict are
debarred from claiming under the policy.
• When the event insured against, namely, death occurs, the insurer is
liable to pay normally under the contract.
• Death, being an inevitable event in course of all human lives, in all life
policies, the insurer must pay. But if it happens due to the wilful &
wrongful act of assured/his agent, it absolves the insurer from liability.
• In Beresford v Royal Insurance Co. Ltd, where one Rowlandson insured
his life in 1925 & sum assured was payable on his death to the
executors of his estate. It was provided in the policy that if the assured
shall die by his own hand, whether sane/insane, within 1 yr of
commencement of policy, the policy shall be void.
• The assured paid premium for 9 years. afterwards he committed
suicide in 1934 as he was indebted. The company rejected the claim
stating that suicide was against public policy.
• The trial court held that where death from felo de se was excluded only
during the first year, the co. could not rely on public policy to define a
claim which arose after few years. But the court of appeal reversed the
judgment. It was held that even though he had committed suicide after few
yrs, it was contrary to public policy that a person who has committed a
crime/ his personal representative should not be allowed to benefit by that
crime.
• However this principle is not followed in India.
• In Northern India insurance Co. v. Kanhaya lal (1938), in the insurance
policy it was provided that the policy was to become unenforceable if
assured cause his own death before policy has been in existence for 1yr.
The assured after 1yr assigned the policy in favour of his son & 10 months
thereafter he committed suicide. The court upheld the assigned son's
contention that suicide was not a crime in India and that India was not
• In 2014, changes were made to insurance policies, and all insurance policies
no longer included a suicide provision. Prior to 2014, such businesses would
not accept claims where the insurer committed suicide. However, beginning in
2014, adjustments were made with the pain and hardships of those left
behind in the family in mind.
• Suicidal death protection under a term insurance plan begins 12 months
from the policy's issue date or 12 months after the policy has been
enhanced. If the insured's suicide is the real cause of death, the applicant will
be completely compensated, including full death benefits.
Circumstances when Suicide Clause is not Applicable
• The insurer has the right to decline your request if the expired policy is
renewed and the subsequent owner commits suicide 365 days after the
policy's renewal date.
• Second, when insured, it provides false/inconvenient information to the
Circumstances affecting risk

• Factors which tend to shorten the span of life assured would amount to the
circumstances affecting risk & those factors are regarded as material facts for
purpose of duty of disclosure.
• A life insurer makes enquiries regarding the facts namely: (a)age of proponent
(b) family history (c)personal health (d) moral history including life habits
(e)geographical position & occupation.
Age of proponent:
• age is an important material fact in life insurance as the rate of premium
depends on age of assured.
• Once the age is admitted by the insurer, correctness of age cannot be
questioned unless the insurer can prove that his admission was procured by
fraud of assured.
• It is always desirable & convenient for assured to get his age admitted either at
the time when policy is issued or as soon as possible thereafter during his
• If in subsequent verification after issue of policy, date is found to be wrong.
It may be either over statement/understatement of age.
• In case of over statement, it is considered to be misrepresentation as it will
be against the interest of maker & in such cases, validity of policy is not
affected. In such cases, if he had paid higher premium, it will be refunded/
adjusted to future premiums.
• In case of understatement, if it is proved to have been made wilfully, it
amounts to fraud & policy becomes voidable. If it doesn’t amount to fraud,
the premium may be increased or sum assured may be reduced.
• But as per provisions of Insurance Act 1938, the correctness of
representation shall not be questioned by an insurer after 2yrs. After 2 yrs,
the only option left with insurer is to adjust the rate of premium.
• In Hemmin’s v. Sceptore Life Assn, a proposer effected with an insurer
an endowment policy payable @ 60yrs or death, but negligently
misstated her age as 41 instead of 44. the fact was later brought to
the notice of insurer & they accepted the same rate of premium for 2
more yrs. Later they demanded from assignee a higher rate of
premium & also difference of premium accumulated to the date of
revival. The assignee declined to pay. It was held that the insurers had
forfeited their right to claim the adjustment of premium without
protest even after they came to know about the error in age.
Family history:
• Risk depends on longevity of the assured & heredity throws
sufficient light & plays an important role in determining the
probable longevity of a person.
• Family history gives a clue to insurers as to the constitution &
prospects of longevity of the assured.
Personal health & Moral history:
• The past, present habits of life which tend to shorten the life must
be disclosed.
• Present state of health is material because no prudent insurer
would underwrite the life of a person with fatal disease. Past illness
may sometimes leave a permanent effect on the person’s life.
Geographical position:
• The place where applicant lives is important as climate &
environment have an appreciable effect on one’s health. Unhealthy
surroundings have a tendency to shorten life.
• Further the place being prone to natural disasters is also something
material.
• Occupation:
• Information regarding occupation is essential to understand the
nature of risk. It has an effect on premium & sum assured.
s.45 Insurance act
• The policy of life insurance cannot be called in question after three years from the policy's issuance,
commencement of risk, revival, or the date of the rider to the policy, whichever is later. A policy can be
called in question within three years on the ground of fraud, provided the insurer communicates the
grounds and materials on which the decision is based. Fraud includes acts committed by the insured or
their agent with intent to deceive the insurer or induce the insurer to issue a life insurance policy.

• Mere silence about facts likely to affect the risk assessment by the insurer is not fraud, unless the
circumstances require it. However, no insurer can repudiate a life insurance policy on the ground of
fraud if the insured can prove that the misstatement or suppression of a material fact was true to the
best of their knowledge and belief, or that there was no deliberate intention to suppress the fact.

• A person who solicits and negotiates a contract of insurance is considered the agent of the insurer. A
policy can be called in question within three years on the ground that any statement of or suppression
of a material fact material to the expectancy of the life of the insured was incorrectly made in the
proposal or other document on which the policy was issued.
Amount recoverable under Life
policy
Under a life insurance policy, the following amounts are recoverable
namely
• The amount insured on the happening of the event insured/after the
completion of period;
• Bonus if declared by company
• Share of profits (in case of participation policy)
• Surrender value: where policy lapses/where surrendered, insurance
co. may pay a percentage of premium.
• Life assurance is a co-operative principle where policyholders pool
their premiums and invest them in a fund. If one policyholder
withdraws, the remaining policyholders suffer setbacks, and the
seceding policy holder must make up the incurred expenses.
• The surrender value of the policy is the amount agreed upon by the
insurer to compensate the policy holder whose policy lapses due to
default.
• In India, after the LIC’s advent, the surrender value is either two years
or 1/10th of the total premiums, whichever is less, provided the
premiums paid exceed at least one full year's premium.
• After a policy acquires a surrender value, the insured has two options:
continue the policy to the paid-up sum, which occurs in temporary financial
trouble, or take a paid-up policy for a reduced sum.
• If the insured wishes to discontinue future premium payments, they can
secure a paid-up policy for a reduced sum during grace periods.
• The Life Insurance Corporation offers a clause to prevent policy forfeiture in
cases of financial difficulty. This clause, known as a non-forfeiture clause,
does not apply to policies where the surrender value is automatically applied
to maintain the policy in force after lapse. In a case involving Mekenna & City
Life Assurance Co, a policy with a surrender value would not lapse
immediately if a renewal premium was not paid within the grace period.
• The automatic non-forfeiture clause in insurance policies allows the insurance company
to adjust the surrender value if the assured fails to pay, treating the value towards
premium payment or deducting it from the sum to be paid after the policy matures.
• This clause is interpreted liberally by courts, as seen in Annapurnabai v. Hindustan Co-
operative Insurance Co., where the sum value remains the property of the assured and
cannot be adjusted under the extension clause.
• in Hundraj Tolamal v Lakshmi Insurance Co Ltd, a policy acquired surrender value after
three years, and subsequent premiums were not paid. The policy was kept alive by
applying the surrender value, which allowed the benefit of days of grace.
• In National Indian Life Insurance Co Ltd. V. Mahadevan, the surrender value was
adjusted towards the payment of the quarterly premium, and the policy could not be
forfeited. However, the Life Insurance Corporation's non-forfeiture provision does not
keep policies alive. An LIC policy becomes paid-up for a proportionate introduced sum if
the default occurs after regular payment for at least two years, provided the premiums
are paid for at least three years and the assured dies within six months. LIC policies can
be revived during the insured's lifetime within five years from the due date of the first
unpaid premium.
Persons entitled to payment
• The persons entitled to payment are: the assured himself; executors
& administrators; heirs & successors; assignee; nominee; holder of
will; joint family member.
the assured himself:
• In case of life insurance over one’s own life, insured himself can get
the payment if he survives the date of maturity provided that:
(a)The insured is living @ time of maturity of policy;
(b)Policy has not lapsed
(c)Policy has not been transferred/assigned
• In case of insurance on life of third parties also, the insured will
be entitled to get the amount. For eg: where creditor/bank
takes a policy on life of debtor/loanee, the debtor/loanee will
be entitled to claim the insured money depending on the terms
and conditions.
• In case insured happens to be a member of JHF, the general rule
is that, in absence of any contract to the contrary, the policy
money is treated as separate property of the assured, because
insurance is considered as a personal contract & the primary
object is to ensure the benefit of wife & children of the assured.
• But if the premium had been paid from Joint Family Funds, then
it will be considered as joint family fund.
• In Smt. Parbati Kuer v. Sarangdhar Sinha and Others (1960), the premiums on the
life policy of the eldest brother was paid out of joint family funds. Similar policies
were taken on the lives of all coparceners & all premiums were paid out of joint
family funds. On the death of eldest brother, his widow & children claimed
insurance proceeds as his personal property, asserting their right. The Court ruled
that the life insurance policy proceeds constituted joint family property because
the premiums were paid from the joint family funds. Therefore, the surviving
coparceners were entitled to the proceeds by the right of survivorship. The Court
emphasized that any asset acquired using joint family funds becomes joint family
property, irrespective of whose name it is held in.
• Where the insured is an adjudged insolvent, Under the Insolvency Laws like the
s.28 of Provincial Insolvency Act, 1920 & s.17 of Presidency Towns Insolvency Act,
1909,( depending on the jurisdiction), the property of the insolvent vests in the
official receiver/assignee.
• Part III of the IBC (which deals with individual and partnership insolvency) has not
yet been fully notified.
• Where any amount is due by an assessee in respect of arrears of
income tax, as per s.226(3) of IT Act 1961, ITO can issue notice to
any person requiring them to pay the money which is due to the
assessee. The ITO then grants a receipt to insurer for any amount
paid in compliance with the notice & it shall discharge the insurer to
the extent of amount paid.
• By order of court also, insurer may be asked to hold the sum insured.
executors & administrators:
• Where insured dies before policy matures, his legal representatives,
successors can get the payment.
• It is generally provided in the policy that the sum assured is payable
to the assured/his executors, administrators, heirs/other legal
• The Indian Succession Act states that a person's right to property cannot be
established in court without Letters of Administration, except in cases of Hindu,
Mohammedan, Buddhist, Sikh, Jain, or Indian Christian. Additionally, an executor or
legatee cannot be established without probate or Letters of Administration, except in
Hindu, Buddhist, Sikh, or Jain wills.
• If a life-assured dies without policy assignment, insurers require legal title evidence,
such as Letters of Administration or Probate of a Will, or a succession certificate.
• The Life Insurance Corporation does not require legal documents for small claims
and deceased heirs under the Hindu Succession Act, instead paying them on the
strength of an indemnity bond.
• The executor's estate of a deceased person is vesting in them, regardless of probate,
as they derive their title from the Will. Administrators, however, derive their title
from the court.
Heirs & Successors
• They are entitled to payment of insured sum under a policy to the exclusion of
all except assignee.
• Even nominee holds money under the policy as a trustee of the heirs of the
insured.
Assignee
• Where policy has been assigned by the policy holder, the assignee will be
entitled for payment.
• The heirs & successors of the insured will be excluded because assignment
constitutes an act of transfer of policy in favour of assignee.
• S.38 of Insurance Act deals with provisions regarding assignment.
• Each such assignment makes the policy free from attachment of the creditors of
assignor.
• In Lakshmi Kutty v. T M Vishnu Nambisan, an endowment policy was assigned by
the assured in favour of his wife by an endorsement. The assignment was duly
communicated to the insurer. The assignment contained a clause as “ I hereby
assign the policy to my wife subject to the condition that if I survive her by the
date of maturity of a policy, the right to receive the policy money shall revert to
me as if this assignment has not been made.” before the policy was matured &
during the lifetime of assignee, the assignor died.
• The money due under the policy were sought to be attached in execution of a
money decree obtained against the deceased but it was held that the assignment
operated as a present transfer in favour of the assignee giving her an absolute
interest under the same.
Nominee
• When a person is named in proposal form as the person for whose
benefit the insurance is effected, such person whose name is
mentioned is called nominee.
• The insurer agrees with the assured that he would pay the insured
amount to nominee in case of death of assured.
• Nominee is neither a party to contract nor has privity with it. So the
only persons entitled to receive or sue or give valid discharge to
insurer are the executors/administrators/legal representatives.
• Holder of will
• S.6 of Indian Succession Act 1925 regards insurance policy & its
proceeds as movable property. It can be disposed by a will.
• When a person has made a testamentary disposition of the policy, no
right as executor or legatee can be established in any court unless a
letter of administration has been granted.
• In cases where letter of administration is not required, a succession
certificate will be enough.
Settlement of claim & payment of
money
• When the event insured against happens, assured becomes entitled to
enforce the policy & insurer becomes liable to pay the amount secured in
the policy in accordance with the terms.
• When it comes to endowment policies, the insurer will pay the sum assured
with bonuses to the persons to whom it is expressed to be payable, upon
the satisfaction of insurer (i) event has happened (ii) title of persons
claiming payment (iii) correctness of age of the assured.
Claim by maturity
• In advance of the date of maturity, insurer sends maturity intimation
informing the assured all requirements which they have to satisfy for
enabling them to receive payment under the policy.
• The requirements include (i) policy document should be submitted by
the claimant (ii) if age is not endorsed, submit age proof (iii) assignment
deed if applicable.
• Then a discharge form is supplied by insurer which should be signed,
stamped & attested.
• This discharge form has to be submitted along with the documents
mentioned above.
Claim on death
• The claimants of the insured shall inform the insurer regarding the
death of assured within the stipulated time or within a reasonable time.
• Certain forms will then be sent to the claimant informing the requirements
which shall include: (i) requirements in case of maturity (ii) claim form A
which is the statement of claimant (iii) death certificate. This is the case if
assured dies within 3 years of policy.
• In case if 5 years, along with Form A, Discharge form will also be issued.
• In case if <2yrs, (a) if assured is an employee, certificate in Form E which
should be provided by the employer (b) statement in claim form B from
the doctor who had last attended him (c) in case the person is not an
employee, along with Form B, forms C & D should be submitted. Form C is
a certificate of cremation or burial from an independent person who has
attended the funeral & seen the dead body. Form D is a certificate of
identity by a respectable person.
• In case if death certificate & form B are available, there is no need of Form
C.
• On receipt of notice of death, the insurer will have to first decide whether
the sum assured is payable before deciding the question as to whom it is to
be paid.
• Insurer has to satisfy himself that assured complied with all conditions
properly. In case, if premiums are paid regularly, there will be no issues. In
case of default, sum assured will be payable only if assured dies with the
grace period of the first default.
• In case of endowment policies, no amount will be payable if regular payment
of premium has not been made at least for 2yrs. In case if paid for 2yrs,
policy will become paid up for proportionately reduced amount & the
amount is paid accordingly subject to deduction of unpaid amount, provided
all forms are submitted.
• On receipt of forms, insurer makes his own investigation. On satisfaction,
insurer issues discharge form which should be filled properly by the
claimant. In case of suicide/unnatural causes, further investigations will be
made. The payment will be made only according to the conditions stipulated
in the policy.
• It also becomes complicated when the cause of death is not available.
• In Ibrahim v. Mackinnon Mackenzie & co., where Ibrahim was a deck hand on
board the ship SS Dwaraka on the high seas, he was last seen on the deck on
16 Dec 1961 at 3 am, but at 7 am, was found missing. The court inferred &
held that he died by accident & also observed that in such circumstances
direct evidence of his falling overboard or being drowned was not necessary.
• If assigned/nominated any person, LIC pays the amount to such
assignee/nominee. In its absence, claimant should produce evidence
of legal title.
• In case of small claims, indemnity bond is sufficient. In that case,
additional forms have to be filled.
• S.47 of Insurance Act 1938 deals with payment of money into court.
• As per the section, the application to the court shall include the
insured person's name, address, date and place of death, policy
nature, claimant details, reasons for inability to obtain a satisfactory
discharge, and address for disposal.
• The court will not entertain the application if made before six months from
policy maturity or death notice. It should be made within 9 months from
policy maturity or death notice
• when the court grants a receipt, it shall be regarded as a satisfactory
discharge. If a satisfactory discharge cannot be obtained, the amount will
be invested in government securities. The insurer must transmit all notices
of claim to the court, and the court will decide on disposal questions.
• The court grants permission only when it is satisfied that there is no other
mode of obtaining a valid discharge by insurer.
• disputes over claims are first handled by the insurer's internal grievance
mechanism, then by the Insurance Ombudsman (for personal lines of
insurance up to ₹50 lakh),Or pursued via consumer courts or civil courts,
depending on the case.
LIC
• Life Insurance Corporation of India (LIC) is the largest public sector
life insurance company and institutional investor in India.
• Headquartered in Mumbai, it plays a crucial role in India’s financial
market.
• Established in 1956 through the Life Insurance of India Act, which
nationalized the insurance sector by merging 245 private insurers
and provident societies into a single entity.
• LIC operates through 8 zonal offices in Delhi, Chennai, Mumbai,
Hyderabad, Kanpur, Kolkata, Bhopal, and Patna.
LIC Act 1956
• S.3 of the act provides for the Establishment and incorporation of Life
Insurance Corporation of India.
• S.4 deals with Board of Directors. They are responsible for supervising and
directing affairs and business of the Corp. The board consists of 18
directors, with at least one woman. These directors include a Chairperson
appointed by the Central Government, a Chief Executive Officer and
Managing Director an officer of the Central Government not below the
rank of a Joint Secretary to the Government of India, an individual with
special knowledge or practical experience in actuarial science, business
management, economics, finance, human resources, information
technology, insurance, law, risk management, or any other field, and
independent directors.
• S.6 deals with the functions of the corp. The Corporation is obligated to
carry on life insurance business, both within and outside India, with the
aim of developing it for the benefit of the community.
• The Corporation has the power to carry on annuity certain, and
reinsurance business, invest funds, acquire, hold, and dispose of
property, transfer life insurance business outside India, advance or lend
money, borrow or raise money, carry on other businesses, and act on
business principles in the discharge of its functions.
• The Corporation may transfer the business to another person or entity,
advance or lend money, carry on other profitable businesses, and act
on business principles in its functions.
Salient features

• Nationalisation of Life Insurance Business: The Act nationalized 245 private

life insurance companies operating in India. It came into effect on 1st
September 1956.
• Establishment of LIC: The Life Insurance Corporation of India (LIC) was
established under Section 3 of the Act. It became the sole public sector life
insurer in India for decades.
• Transfer of Assets and Liabilities: Assets and liabilities of all private life
insurers were transferred to the LIC. Shareholders of the former insurers
were compensated.
• Monopoly in Life Insurance: LIC enjoyed a monopoly in the life insurance
sector until the industry was liberalized in 2000.
• Appointment of Board and Officers: LIC’s board and key personnel were
appointed by the Central Government.
• Capital Structure: The LIC was initially set up with a capital of ₹5 crore
provided by the Government of India.
• Government Ownership and Oversight: LIC is wholly owned by the
Government of India (until partial disinvestment in 2022). The Central
Government had the power to direct LIC’s policies and operations.
• Public Welfare Focus: LIC was mandated to function in the best interests
of the policyholders. Emphasis was placed on rural and social sector
insurance.
• Investment for National Development: LIC was required to invest a
substantial portion of its funds in government securities and
infrastructure, supporting economic development.
The General Insurance Business
(Nationalisation) Act, 1972

• The General Insurance Business (Nationalisation) Act, 1972 marked the

nationalization of general insurance business in the country.
• the government decided to nationalize the sector to provide affordable insurance
coverage to a wider section of the population, especially in rural areas.
• The Act led to the acquisition and transfer of the undertakings of existing general
insurance companies to the government. It provided for the creation of four
government-owned insurance companies: National Insurance Company Ltd., New
India Assurance Company Ltd., Oriental Insurance Company Ltd., and United India
Insurance Company Ltd.
• The primary objective of the Act was: to spread the reach of general insurance
services across India, particularly in rural and underserved areas; to provide affordable
insurance coverage and promote economic development by reducing risks for
individuals and businesses; to ensure that insurance services were available to meet
the needs of various sectors, including agriculture, industry, trade, and commerce.
Salient features

• Nationalisation of General Insurance: The Act nationalized the general

insurance business in India. It took over 107 private general insurance
companies operating in India at that time.
• Formation of General Insurance Corporation (GIC): Section 9 of the Act
provides for its establishment. It supervised the operations of general
insurance companies.
• Transfer of Shares and Undertakings: All shares of the acquired
companies were vested in the Central Government. The undertakings of
private insurers were transferred to Indian insurance companies formed
for this purpose.
• Reorganisation: GIC reorganized the business by merging and grouping
the acquired companies into four subsidiaries.
• Control and Regulation: The Central Government had the power to
control the operations and management of GIC and its subsidiaries. It
aimed to ensure uniformity, efficiency, and sound financial
management.
• Policyholder Protection: Emphasis was laid on protecting the
interests of policyholders. Ensured prompt service and claims
settlement.
• In 1999, IRDA Act allowed private companies to re-enter the
insurance sector. GIC was re-notified as a reinsurer, and its
subsidiaries became independent in 2002.
Health insurance
• A health insurance policy is a contract between an insurer and
an individual or group in which the insurer agrees to provide
specified health insurance cover at a particular “premium”
subject to terms and conditions specified in the policy.
• Health insurance can reimburse the insured for expenses incurred from illness
or injury, or pay the care provider directly. It is often included in employer
benefit packages as a means of enticing quality employees, with premiums
partially covered by the employer but often also deducted from employee
paychecks. The cost of health insurance premiums is deductible to the payer,
and the benefits received are tax-free, with certain exceptions.
• A plan that covers or shares the expenses associated with health care can be
described as health insurance.
TYPES OF HEALTH INSURANCE
• Individual Health Insurance: An individual health insurance is a type of health
insurance plan wherein only one person can be covered in each plan. This
means, both the health insurance premium and sum insured is dedicated for
one person only and cannot be shared.
• Family Floater Health Insurance: A family floater health insurance is a type of
health insurance plan wherein you and your family members share one plan.
This means both your health insurance premium and sum insured would be
shared amongst all members in the plan.
• Group Health Insurance: Group health insurance is insurance provided to a
formal group like employees working in an organization or members of
society. Group health insurance can be also extended to people directly or
indirectly related to the group.
• Senior Citizens Health Insurance: Senior citizen health insurance plans
cover the elderly from various medical expenses including pre-existing
diseases and critical illnesses. These health plans are especially designed
for 60 years and above, to help them pay for their old-age related medical
problems. It pays for the expense incurred and hospitalization surgery
treatment, critical illnesses, accidental injuries and pre existing diseases.
• Maternity insurance: is basically health insurance with maternity
coverage. This insurance coverage for costs links to deliveries for babies.
Women employees in some organisations also get dedicated maternity
insurance add- ons with their growth health policies. Maternity insurance
comes with coverage for pre and post hospitalization cost with the letter
being covered for up to 60 days from the discharge date.
• Critical Illness Insurance: A critical illness policy is a special health
insurance plan where a lump sum amount is paid out which is usually
equal to the sum insured to the customer, in case there is any serious
ailment. Critical illness insurance is does a plan where you get a
defined lump sum benefit which can pay for the cost of the critical
element, treatment recuperation and other expenses.
• Top-Up Health Insurance: A top-up health policy is an additional
coverage for people who have an existing individual plan or a
mediclaim from the employer. It is for reimbursement of expenditure
which arises out of single illness beyond the limit of the existing cover.
• Individual chooses a plan based on needs and pays a premium. Policy outlines
sum insured, coverage, exclusions, network hospitals, etc.
• The mode of payment can be either cashless or reimbursement. Cashless:
Available at network hospitals. Insurer directly pays the hospital.
Reimbursement: You pay upfront and get reimbursed later.
• The mode of claiming are different. For cashless: Show health card, pre-
authorize treatment. For reimbursement: Submit documents post-treatment
(bills, prescriptions, discharge summary).
• A fixed percentage of the bill must be paid by the insured (common in senior
citizen plans).
• Caps on room rent, doctor fees, specific treatments.
• Excludes Cosmetic surgery, infertility treatments, experimental procedures,
injuries due to substance abuse, etc.
Motor vehicles Act 1988
• The Motor Vehicles Act regulates all aspects of road transport vehicles. The
Motor Vehicles Act, 1988 came into force from 1 July 1989. I
• The Act makes provisions for licensing of drivers of motor vehicles,
registration of motor vehicles, control of traffic, insurance of motor vehicles
and establishment of Claim Tribunals for compensation to be given to the
victims of accidents involving motor vehicles.
• Liability without fault was mentioned under s. 140-144 of the act which was
omitted with effect from 2022.
• Section 140 provided for no-fault liability compensation and s. 141-144
dealt with procedures, defenses and the like.
• Now it is covered under s.164
• Motor insurance policy is a contract between the insured and the insurer in which the
insurer promises to indemnify the financial liability in event of loss to the insured. This
loss to insured can arise out of:- i. Loss to insured motor vehicles due to accidental
damage arising out of various perils covered under the policy. ii. His incurring financial
liability towards third parties due to accident of motor vehicle resulting in injury/
disability or death of the third party or damage or loss of third party property. iii. Personal
Accident Injury to owner arising out of insured vehicle meeting with an accident.
• Own damage to vehicle is voluntary section which one may insure or not, Third Party
Liability, Personal Accident injury to owner Driver are compulsory cover as per Motor
Vehicle Act 1988.
• Motor third-party insurance or third-party liability cover, is a statutory requirement
under the Motor Vehicles Act. It is referred to as a ‘third-party’ cover since the beneficiary
of the policy is someone other than the two parties involved in the contract i.e. the
insured and the insurance company.
• The policy does not provide any benefit to the insured; however it covers the insured’s
legal liability for death/disability of a third party or damage to third party property.
• S.146 deals with Necessity for insurance against third party risks.
• a person cannot use a motor vehicle in a public place unless they have an insurance
policy in force, including one for dangerous or hazardous goods.
• The provisions of this sub-section do not apply to vehicles owned by the govt. for
commercial purposes. Govt. may by order exempt vehicles belonging to
central/state/local govt. provided a fund is established and maintained by the authority.
• S.147 deals with Requirements of policies and limits of liability.
• The insurance policy must be issued by an authorized insurer to cover the death or
bodily injury of any person or classes of persons, including the owner of the goods or
their representative, or damage to third-party property caused by the use of a motor
vehicle in a public place.
• The Central Government will prescribe a base premium and insurer liability for third-
party insurance related to death or grievous injury. A policy cannot be effective without a
certificate of insurance in prescribed form and specifics.
• An insurer issuing a policy under this section is liable to indemnify the person or classes
of persons specified in the policy.
• S.149 deals with Settlement by insurance company and procedure. The
insurance company designates an officer to settle claims related to an
accident. The officer may offer settlement details to the claimant within
30 days, following a prescribed procedure. If the claimant accepts the
offer, the Claims Tribunal records the settlement, making the claim
deemed settled by consent. If rejected, a hearing date is set for
adjudication on merits.
• S.150 deals with duty of insurers. If a certificate of insurance is issued
under sub-section (3) of section 147, and a judgment or award is
obtained against an insured person, the insurer must pay the person
entitled to the benefit of the award any sum not exceeding the assured
payable amount, along with costs and interest on that sum.
• No sum shall be payable by an insurer under sub-section (1) in respect of any
judgment or award unless the insurer had notice through the court or
Claims Tribunal of the bringing of the proceedings. The insurer to whom
notice is given is entitled to be made a party to the proceedings and defend
the action on grounds such as breach of specified conditions of the policy,
non-receipt of premium, or non-disclosure of material facts.
• If a judgment or award is obtained from a court in a reciprocating country
and the foreign judgment is conclusive, the insurer is liable to the person
entitled to the benefit of the decree in the manner and to the extent
specified in sub-section (1).
• If a certificate of insurance is issued under sub-section (3) of section 147, and
a judgment or award is obtained against an insured person, the insurer must
pay the person entitled to the benefit of the award any sum not exceeding
the assured payable amount, along with costs and interest on that sum.
• No insurer to whom notice has been given is entitled to avoid his liability
to any person entitled to the benefit of any such judgment or award
otherwise than in the manner provided for in sub-section (2) or in the
corresponding law of the reciprocating country.
• If the claimant is not aware of the insurance company with which the
vehicle was insured, it is the duty of the vehicle owner to furnish the
information to the tribunal or court.
• S.151 states about Duty to give information as to insurance. If a claim is
made, the person must state whether they were insured under the policy
or would have been if the insurer had not avoided or cancelled the policy.
• S.152 is about settlement. An insurer cannot settle a claim made by a
third party regarding a liability unless the third party is a party to the
settlement. If an insured person becomes insolvent or a company is
winding up, no agreement or payment made after liability is incurred
to a third party can defeat their rights under this Chapter.
• S.155 deals with Effect of death on certain causes of action. The
death of a person in whose favour a certificate of insurance had
been issued, if it occurs after the happening of an event which has
given rise to a claim shall not be a bar to the survival of any cause of
action arising out of the said event against his estate or against the
insurer.
• S.156 discusses about Effect of certificate of insurance. The certificate of
insurance is a legal document that outlines the terms and conditions of an
insurance contract between an insurer and an insured person. If the policy
described in the certificate has not been issued to the insured, the insurer is
considered to have issued a policy that conforms to the description and
particulars stated in the certificate.
• S.157 deals with Transfer of certificate of insurance. If a person transfers
ownership of a motor vehicle, the certificate of insurance and the policy are
considered transferred to the new owner. This includes the transfer of rights
and liabilities. The transferee must apply to the insurer within 14 days for
necessary changes, and the insurer will make the necessary changes. This
ensures the transfer of insurance is properly documented and documented.
• S.158 prescribes about Production of certain certificates, licence and permit in
certain cases.
• A person driving a motor vehicle in public places must provide a certificate of
insurance, registration, driving license, and certificate of fitness for a transport
vehicle. If a vehicle causes an accident involving death or injury, the driver must
produce the necessary certificates, license, and permit at the police station where
the report is required. Failure to produce the certificate of insurance will not
result in conviction. The owner of a motor vehicle must provide information to a
police officer to determine if the vehicle was driven in contravention of section
146. The officer in charge of the police station must forward a copy of the report
within thirty days to the relevant Claims Tribunal and insurer. If a copy is made
available to the owner, they must forward it to the Claims Tribunal and insurer
within thirty days.
• S.159 states about Production of certificate of Insurance on application for
authority to use vehicle. A State Government may make rules regarding
vehicle owners to provide evidence for public use permission, ensuring the
necessary insurance policy is in force or the vehicle is a vehicle that does not
apply to section 146, upon the vehicle's operation.
• S.160 is about Duty to furnish particulars of vehicle involved in accident. If a
person claims compensation for an accident involving a motor vehicle, a
registering authority or police station officer must provide information
about the vehicle's identification marks, the person using the vehicle, and
the property damaged within a prescribed timeframe, as per the Central
Government's guidelines. This information is required for claimants or
insurers.
• S.161 speaks about hit and run accidents. The compensation regarding
death of any person resulting from a hit and run motor accident, a fixed
sum of 2 lakh rupees; in respect of grievous hurt to any person a fixed sum
of Rs. 50,000/-
• The Central Government can create a scheme outlining the administration
of compensation schemes, application forms, and procedures for officers or
authorities. The scheme may also provide interim relief to claimants,
punishing violations with imprisonment or fines. The Central Government
can delegate powers, functions, or duties to officers or authorities with
prior approval, and may impose penalties for non-compliance. This is done
through notification in the Official Gazette.
• S.162 prescribes Scheme for golden hour. The Central Government will create a
cashless scheme for such victims, including a fund for such treatment.
• S.163 states about Refund in certain cases. Compensation for death or grievous
hurt under section 161 must be refunded to the insurer if any other
compensation or amount is awarded or paid for the same death or hurt under
any other law. Before awarding compensation for accidents involving motor
vehicle use, the Claims Tribunal, court, or authority must verify if
compensation has already been paid under section 161 or if an application for
payment is pending. If compensation has already been paid, the person liable
must refund it to the insurer. If an application is pending, the particulars of the
awarded compensation must be forwarded to the insurer.
• S.164 is about payment of compensation in case of death, grievous hurt etc. the
owner of the motor vehicle or the authorised insurer shall be liable to pay in
the case of death or grievous hurt due to any accident arising out of the use of
motor vehicle, a compensation, of a sum of five lakh rupees in case of death or
of two and a half lakh rupees in case of grievous hurt to the legal heirs or the
victim, as the case may be.
• the claimant shall not be required to plead or establish that the death or
grievous hurt was due to any wrongful act or neglect or default of the owner
of the vehicle or of the vehicle concerned or of any other person.
• Where compensation has been paid under any other law for the time being in
force, such amount of compensation shall be reduced from the amount of
compensation payable under this section.
• S.164A provides for a scheme by the central govt. for providing interim
relief to claimants praying for compensation. It shall also provide for
procedure to recover funds disbursed under such scheme from the owner
of the motor vehicle.
• S. 164B deals with Motor Vehicle Accident Fund. The Fund shall be
constituted for the purpose of providing compulsory insurance cover to all
road users in the territory of India. The Fund shall be utilised for treatment
of the persons injured in road accidents, compensation to persons/ their
representatives who died & were grievously hurt in hit and run motor
accidents, compensation to such persons as may be prescribed. Proper
accounts has to be maintained which will be audited by CAG.
Claims tribunal
• As per s.165, State govt. may constitute one or more MACT for
adjudicating upon claims for compensation in respect of accidents
involving the death of, or bodily injury to, persons arising out of the
use of motor vehicles, or damages to any property of a third party so
arising, or both.
• A person shall not be qualified for appointment as a member of a
Claims Tribunal unless he--(a) is, or has been, a Judge of a High Court,
or(b) is, or has been, a District Judge, or (c) is qualified for
appointment as a High Court or District Court Judge].
Application for compensation
(S.166)

• An application may be made by the person who has sustained the

injury; or by the owner of the property; or by all or any of the legal
representatives of the deceased; or by any duly authorised agent.
• If a person accepts compensation under section 164 in accordance
with the procedure provided under section 149, his claims petition
before the Claims Tribunal shall lapse.
• The application can be made to the tribunal which has jurisdiction
over the area in which the accident occurred or the claimant
resides or carries on business or the defendant resides.
• The application shall be made within six months of the occurrence
of the accident.
Award (s.168)
• Upon receiving application, the claims tribunal shall give notice to insurer and
after hearing all parties, an inquiry shall be conducted.
• Subject to the inquiry, MACT may make an award determining the amount of
compensation which appears to it to be just and specifying the person or persons
to whom compensation shall be paid and in making the award the Claims Tribunal
shall specify the amount which shall be paid by the insurer or owner or driver of
the vehicle involved in the accident or by all or any of them
• Copies of award shall be delivered to all concerned parties within a period of
fifteen days from the date of the award.
• the person who is required to pay any amount in terms of such award shall, within
thirty days of the date of announcing the award by the Claims Tribunal, deposit
the entire amount awarded in such manner as the Claims Tribunal may direct.
Procedure & powers of MACT
• The Claims Tribunal shall have all the powers of a Civil Court and follow
such summary procedure as it thinks fit.
• for the purpose of adjudicating upon any claim for compensation,
Tribunal may choose one or more persons possessing special
knowledge of any matter relevant to the inquiry to assist it in holding
the inquiry.(s.169)
• Under s.171, interest may also be awarded by the tribunal in certain
cases.
• If it is found that any misrepresentation has been made to obtain
insurance policy or if any party has put vexatious claim/defence, the
tribunal may also award compensatory costs (s.172)
• As per s.173, appeals may be preferred to HC within ninety days from the
date of the award. If the appellant is required to pay any amount in terms of
such award, no appeal will be entertained unless he has deposited with it
twenty-five thousand rupees or fifty per cent of the amount so awarded,
whichever is less, in the manner directed by the High Court. No appeal shall
lie against any award of a Claims Tribunal if the amount in dispute in the
appeal is less than 1[one lakh] rupees.
• In case of recovery of money due, the Collector shall proceed to recover the
same in the same manner as an arrear of land revenue.
• no Civil Court shall have jurisdiction to entertain any question relating to any
claim for compensation which may be adjudicated upon by the Claims
Tribunal