INTRODUCTION

The whole idea of insurance has developed on the fact that human life is full of uncertainties and
the life of a person itself is very uncertain. It is well said that Life is full of risks. For property,
there are fire risks, for shipment of goods, there are perils of sea, for human life, there is the risk
of death or disability and so on and so forth.1 The scheme of life insurance provides an
assurance that if such an event happens, the person or his dependents would get financial
assistance to bear the loss.
Insurance may be described as a social device to reduce or eliminate risk to life and
property. It is rightly defined as a social device for reducing risk by combining a sufficient
number of exposure units to make their individual losses collectively predictable, the predictable
loss is then shared proportionally by all these in the combination. 2 There are two branches of
insurance that is general insurance and life insurance. General insurance deals with the exposure
of risks of goods and property, whereas life insurance is a way to meet the contingencies of
physical death and economic death.
MEANING AND DEFINITION
To understand life insurance we have to first understand the scheme of insurance. Insurance is a
co-operative device to spread the loss caused by a particular risk over a number of persons who
are exposed to it and who agree to insure themselves against the risk.3 Under the plan of
insurance, a large number of people associate themselves to share different types of risks
attached to human life and property. The aim of all types of insurance is to make provision
against such risks. In this way, life insurance is a social device to share the risk of loss of life.
In simple words, it means an agreement in which one party agrees to pay a given sum of
money upon the happening of a particular event contingent upon duration of human life in
1G. Gopalkrishna, The Social Security Character of Life Insurance, The ICFAI University Journal of
Insurance law, Vol. VI, No. 4, (2008), p.12.
2 (Rober Mehr, Emesson Cammack, 2000).
3 M. N. Mishra, Law of Insurance, Eighth Edition, (2010), p.1, Central Law Agency, Allahbad.

exchange of the payment of a consideration. The person who guarantees the payment is called
Insurer, the amount given is called Policy Amount, the person on whose life the payment is
guaranteed is called Insured or Assured. The particular event on which the payment is guaranteed
to be given may be Death or Life. The consideration is called the Premium. The document
evidencing the contract is called Policy.4
There is no statutory definition of life insurance, but it may be defined as a contract
whereby a person (insurer) agrees for a consideration (that is payment of a sum of money) or a
periodical payment, called the premium to pay to another (insured or his estates) a stated sum of
money on happening of an event dependent on human life.5
Life insurance is a contract to pay a certain sum of money on the death of a person in
consideration of the due payment of a certain annuity for his life calculated according to the
probable duration of life.6
Life insurance is a contract in which one party agrees to pay a given sum of money upon
the happening of a particular event contingent upon the duration of human life in consideration
of immediate payment of a smaller sum or other equivalent periodical payments by the other.7
In light of the above definitions the essential features of life insurance8 can be summed up
as under:
(i) It is a contract relating to human life
(ii) There need not be an express provision that the payment is due on the death of the person.
4 M. N. Mishra, Law of Insurance, Eighth Edition, (2010), p.1, Central Law Agency, Allahbad.
5 Federation of Insurance Institute, Mumbai.
6 Dalby v. India and London Life Assurance Company (1854) 15 CB 365:139 AII ER465. See also
Goparatnam & ors v. LIC of India & 2 ors,2006 (2)Andh LD (Cons. Reporters) 10; Law Finder Doc Id #
400314.
7 Joseph v. Law Integrity Insurance Company (1912) 82 LJ187.
8 Avtar Singh, Law of Insurance, (2004), p.41, Eastern Book Company, Lucknow.

(iii) The contract provides for payment of lump sum money.

(iv) The amount is paid at the expiration of certain period or on death of the person.

HISTORY OF LIFE INSURANCE

The history of life insurance in India started after the establishment of a British firm, in 1818
Oriental Life Insurance Company, the first life insurance company on Indian soil started
functioning.
1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its
business.
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies are taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the Triton
Insurance Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British.

In 1818 a British firm called the Oriental Life Insurance Company was formed in Calcutta to
serve the interest of those who came from Europe. This was followed by the establishment
of the Bombay Life Assurance Company in 1823 in Bombay. The Madras Equitable Life
Insurance Society in 1829 and The Oriental Government

Security Life Assurance Company in 1874. It is a telling comment on the British view of Indians that
prior to 1871, Indian lives were treated as sub-standard and attracted an extra premium of
15 to 20 percent. The Bombay Mutual Life Assurance Society, an Indian insurer formed in
1871, was the first one to charge normal rates for Indian lives. There were no specific
regulations for the life insurance business until 1912, when it came to be formally regulated
under the provisions of the Indian Life Assurance Companies Act 1912.In 1928 the Indian
Insurance Companies Act was enacted to enable the government to collect statistical
information about both the life and the non-life insurance business including the provident
insurance societies. During the period from 1912 to 1930 the insurance business witnessed
a setback. A number of changes took place from 1930 to 1938 and the Government of India
passed Insurance Act 1938, with comprehensive provisions for the detailed and effective
control over the insurers so as to protect the interest of insuring public.

In India, Life Insurance business is defined under Section 2 (11) of Insurance Act, 1938, which
reads as : Life Insurance business means the business of effecting contracts of insurance upon
human life, including any contract whereby the payment of money is assured on death (except
death by accident only) or the happening of any contingency dependent upon human life and any
contract which is subject to payment of premium for a term dependent on human life and shall be
deemed to include the granting of :

CONTRACT OF LIFE INSURANCE

A contract of insurance is a contract either to indemnify a person against a loss which may arise on the
happening of an event or to pay a sum of money on the happening of some or any event for an agreed
consideration. Under such a contract one party agrees to take the risk of another persons life, property or
liability in consideration of certain comparatively small periodic payments.

The object of insurance should be lawful. The person proposing for insurance must have interest
in the continued life of the insured and would suffer pecuniary loss if the insured person dies.
This is known as Insurable Interest. In Life Insurance the presence of insurable interest is
essential at the time of effecting the Contract of Insurance .If there is no insurable interest, the
contract becomes wagering and hence illegal. Every individual has unlimited insurable interest
on his/her life.Husband has insurable interest on the life of his wife and vice versa.
The creditors have insurable interest on the lives of debtors to the extent of indebtedness.
Business partners have insurable interest in the lives of other partners to the extent of their
financial interest in the partnership ..Employers have insurable interest in the lives of employees
who are key to the profitability of the business.

NATURE OF LIFE INSURANCE CONTRACT

The nature of contract of life insurance may be summarized under the following heads:
(a) Unilateral Contract

It is that type of contract where only one party to the contract makes legally enforceable promise.52 Here
it is the insurer who makes an enforceable promise. The insurer can repudiate the contract of payment of
full policy, but he cannot compel the insured to pay the subsequent premiums. On the other hand, if the
insured continues to pay the premium, the insurer has to accept them and continue the contract.53

Principle of Indemnity Insurance contracts other than life insurance contract are
contracts of indemnity in the sense that the amount payable by the insurer in case of the
contingency stated in the policy occurring is limited to the loss that the insured will
suffer. The insurance contract promises to keep the insured indemnified against the
financial loss that he would suffer on account of the happening of the event

(b) Contract of Utmost Good Faith

In Life Insurance contracts, a very high degree of good faith is required to exist between the
parties to the contract, viz., the insurer and the insured. This is called the principle of utmost
good faith (Uberrima fides) ..It is the duty of the proposer to disclose the material information for
proper assessment of risk by the insurer
All the required information for the assessment of risk is known only to the proposer and the
insurer has no knowledge of the risk ..The proposer may not be having technical knowledge
about the insurance products, the benefits, pricing aspects etc. and hence will have to rely upon
the insurer to ensure that the terms of the contract are fair and equitable.

An insurance contract is a contract of utmost good faith and therefore, the contracting parties are placed
under a special duty towards each other, not merely to refrain from active misrepresentation but to make
full disclosure of all material facts within their knowledge.54 It has been said that there is no class of

documents to which the strictest good faith is more rightly required in courts of law than policies of
insurance.55
(c) Conditional Contract

Life insurance is subject to the conditions and privilege provided on the back of the policy. The conditions
put the obligation on a party to fulfill certain conditions before the
proof of death or of disability are the parts of the contract. The conditions whether precedent or
subsequent of the legal rights must be fulfilled in order to complete the contract.
(d) Aleatory Contract

In such a kind of contract, no mutual exchange of equal monetary value is done. It is the happening of the
contingency on which the payment is made. If death occurs only after payment of a few premiums, full
policy amount is paid.
(e) Contract of Adhesion

The terms of the contract are most of the times fixed by one party (the insurer) and with minor
exceptions, must be accepted or rejected in total by the other party (the proposer).

In such a contract, the terms of the contract are not arrived at by mutual negotiations. Similarly, in a life
insurance contract, the contract is decided upon by the insurer only. The party on the other side has to
choose between the two options, i.e. either to accept or reject the policy.
(f) Contract of Certain Amount

Life insurance contract does not provide an indemnity. It is in the nature of a contingency contract by
providing for the payment of the agreed amount on the happening of the event.

(g) Standard Form of Contract

In the life insurance, all the essentials of a general contract as provided by the Indian Contract Act, 1872,
for a valid contract are present.

Formation of Life Insurance Contract

Like any other contract, a contract of life insurance must satisfy the essentials of a valid contract. All the
agreements are contracts if they are made by the free consent of the parties competent to contract, for a
lawful consideration and with a lawful object, and are not hereby expressly declared to be void

OBJECTIVE OF LIFE INSURANCE-

Spread Life Insurance widely and in particular to the rural areas and to the socially and
economically backward classes with a view to reaching all insurable persons in the

country and providing them adequate financial cover against death at a reasonable cost.
Maximize mobilization of people's savings by making insurance-linked savings

adequately attractive.
Bear in mind, in the investment of funds, the primary obligation to its policyholders,
whose money it holds in trust, without losing sight of the interest of the community as a
whole; the funds to be deployed to the best advantage of the investors as well as the
community as a whole, keeping in view national priorities and obligations of attractive

return.
Conduct business with utmost economy and with the full realization that the moneys

belong to the policyholders.

Act as trustees of the insured public in their individual and collective capacities.
Meet the various life insurance needs of the community that would arise in the changing

social and economic environment.

Involve all people working in the Corporation to the best of their capability in furthering
the interests of the insured public by providing efficient service with courtesy.

Promote amongst all agents and employees of the Corporation a sense of participation,
pride and job satisfaction through discharge of their duties with dedication towards
achievement of Corporate Objective.

LIC ACT
The Life Insurance Corporation of India is the largest insurance and investment group owned by
Indian State with assets, funds and policies. The Parliament enacted the Life Insurance
Corporation Act in 1956 which came into force on July 1, 1956.The Act provides for the
establishment of the Life Insurance Corporation of India which shall start functioning on
September 1, 1956. The LIC is a corporate having perpetual succession and a common seal with
the power to acquire hold and dispose of property and can by its name see and be sued.
ConstitutionSection 3 of the LIC Act,1956: Establishment and incorporation of life insurance Corporation of
India

1.with effect from such date as the central government may by notification in the official
Gazette, appoint, there shall be establish a corporation called the life insurance corporation of
India.
2.The corporation shall be a body corporate having perpetual succession and a common seal with
power, subject to the provisions of this act to acquire, hold, and dispose of property and may by
its name sue and be used.
CapitalThe original capital of the corporation shall be five crores of rupees provided by the central
government after due appropriation made by parliament by law for the purpose, and the terms
and conditions relating to the provisions of such capital shall be such as may be determined by
the central government.
The central government may on the recommendation of the corporation, reduce the capital of the
corporation to such extent and in such manner as the central government may determine.
Transfer of servicesAll the employees except chief agent will be vested into new life business. The salary and terms
of employment will remain the same unless insurance business thinks fit to change the terms
of employment for the benefit of the policyholder. If any term is not acceptable to an employee,
he can be terminated by paying three months salary as compensation. Subject to such rules as the
central government may make in this behalf, every whole-time salaried employee of a chief
agent of an insurer whose controlled business has been transferred to and vested in the
corporation.
Authorities(a)Managing Director
The corporation may appoint, one or more persons to be the Managing Director or Directors of
the corporation and every Managing Director shall be a whole-time officer of the corporation,
and shall exercise such powers and perform such duties as may be entrusted or delegated to him
by the executive committee or the corporation.

(b)Zonal Managers
The corporation may entrust the superintendence and direction of the affairs and business of a
zonal office to a person, whether a member or not, who shall be known as a zonal manager and
the zonal manager shall perform all such functions of the corporation as may be delegated to him
with respect to the area within the jurisdiction for each of the Zonal office.

Conclusion
In a period of half a century and less, the insurance sector in the country has come a full circle,
from being an open competitive market to full nationalization and then back again to a
liberalized market, in which private players and public sector companies are on a level of playing
field. It becomes imperative at this instance to appraise the performance of Life Insurance
Corporation of India succeeding sectoral reforms. And for evaluating whether the performance of
LIC is in progression, key determinants are identified and listed.
CONCLUSIONAfter overhauling the all situation that boosted a number of Pvt. Companiesassociated
with multinational in the Insurance Sector to give befittingcompetition to the established behemoth
LIC in public sector, we come atthe conclusion that :1) There is very tough competition among the
private insurance companieson the level of new trend of advertising to lull a major part of
Customers.2) LIC is not left behind in the present race of advertisement.3) The entry of the Pvt.
Players in the Insurance Sector has expandedthe product segment to meet the different level of the
requirement of thecustomers. It has brought about greater choice to the customers.4) Private
insurers have restricted reach to the customers.5) LIC has vast market and very firm grip on its
traditional customers andmonopoly of life insurance products.6) Bank assurance - that allows life
insurers to leverage on the risk productthrough bank network, was adopted by private players. But
LIC was also notleft behind as picking up majority stake in the corporation Bank and largeequity
stake in the Oriental Bank of Commerce.IRDA is also playing very comprehensive role by regulating

normsmandating to private players in this sector, that increases the confidencelevel of the customers
to the private playersEmmanuel Savio Page 33St. Andrews College T.Y.B.B.I

Abstract
The insurance industry has undergone a drastic change since liberalization, privatization and globalization of the
Indian economy in general and the insurance sector in particular. For almost four decades LIC has been sole player
with virtual monopoly in the life insurance sector. The entry of so many companies in this sector was likely to affect
the performance of Life Insurance Corporation. Thus the LIC public sector giant, which never faced competition
earlier, now has to compete with the private players who boast of the rich and long experience of their partners from
the developed countries of the world. It becomes imperative at this instance to appraise the performance of Life
Insurance Corporation of India, succeeding sectoral reforms. And for evaluating the performance of LIC in
progression, key determinants are identified and listed.

Conclusion
In a period of half a century and less, the insurance sector in the country has come a full circle, from being an open
competitive market to full nationalization and then back again to a liberalized market, in which private players and
public sector companies are on a level of playing field. It becomes imperative at this instance to appraise the
performance of Life Insurance Corporation of India succeeding sectoral reforms. And for evaluating whether the
performance of LIC is in progression, key determinants are identified and listed.

Functions of the Corporation.

(1) Subject to the rules, if any, made by the Central Government in this behalf, it shall be the
general duty of the Corporation to carry on life insurance business, whether in or outside India,
and the Corporation shall so exercise its powers under this Act as to secure that life insurance
business is developed to the best advantage of the community.
(2) Without prejudice to the generality of the provisions contained in sub-section (1) but subject
to the other provisions contained in this Act, the Corporation shall have power
(a) to carry on capital redemption business, annuity certain business or reinsurance business
insofar as such reinsurance business appertains to life insurance business;
(b) subject to the rules, if any, made by the Central Government in this behalf, to invest the
funds of the Corporation in such manner as the Corporation may think fit and to take all such
steps as may be necessary or expedient for the protection or realisation of any investment;
including the taking over of and administering any property offered as security for the
investment until a suitable opportunity arises for its disposal;
(c) to acquire, hold and dispose of any property for the purpose of its business;
(d) to transfer the whole or any part of the life insurance business carried on outside India to
any other person or persons, if in the interests of the Corporation it is expedient so to do;
(e) to advance or lend money upon the security of any moveable or immovable property or
otherwise;
(f) to borrow or raise any money in such manner and upon such security as the Corporation may
think fit;

(g) to carry on either by itself or through any subsidiary any other business in any case where
such other business was being carried on by a subsidiary of an insurer whose controlled business
has been transferred to and vested in the Corporation under this Act;
(h) to carry on any other business which may seem to the Corporation to be capable of being
conveniently carried on in connection with its business and calculated directly or indirectly to
render profitable the business of the Corporation;
(i) to do all such things as may be incidental or conducive to the proper exercise of any of the
powers of the Corporation.
(3) In the discharge of any of its functions the Corporation shall act so far as may be on business
principles.