Life insurance is the contract of insurance in which one party agrees to pay a specified sum of money on the happening of a specific event.  It is contingent upon the duration of human life in consideration of periodic payment or premium by another party. The concept of life insurance was contrived to ensure that dependants are not rendered destitute on the death of their “breadwinner” Life insurance policies often include exclusion clauses and limiting terms to the effect that the insured shall be excluded from liability on the occurrence of specified incidents including suicide, terrorist attacks war, riot, fraud and earthquake.

CLASSIFICATION OF LIFE INSURANCE                                                         

Life insurance is classified into the following

  1. WHOLE LIFE INSURANCE: It provides for the payment of a specified sum of money to named beneficiaries on the death of the life insurance in consideration of an agreed premium as a consideration which may be paid periodically or as a lump sum. it is a medium of providing for one’s dependents in case of premature death which is a necessary end for all mortals.
  2. ENDOWMENT INSURANCE: It provides for the payment of a stipulated sum when the life insured attains a specified age or on the death of the insured whichever occurs first. Endowment insurance apart from being a viable arrangement for one’s dependent could also provide substantial savings for aged insurer.
  3. TERM INSURANCE: It is a short-term insurance transaction where the insurer undertakes to pay the insured sum on the death of the insured within the term stipulated in the insurance policy. It differs from the endowment insurance because the sum insured cannot be paid unless the insured dies within the term stipulated in the policy. It is usually recommended for creditors wishing to insure the life of their debtors and persons engaged in hazardous activities.
  4. INSURABLE INTEREST: A  person seeking to take out an insurance policy on the life of another must establish that he has an insurable interest in the life insured.  Section  56(1)  of the insurance  Act  2003  provides that a policy of insurance made by a person on the life of any other person or on any other event whatsoever shall be null and void where the person for whose benefit or on whose account the policy of insurance is  made has no insurable interest in the policy of insurance or where it is made by gaming or wagering. Section 56 (2) of the insurance Act 2003 also provides that a person shall be  deemed to have an insurable interest in the life of any other person or in any other event where he stands in any legal relationship to that person or event or be prejudiced by death of that person or the loss from the occurrence of the event. The insurance Act extends legal relationship to relationship which exists between persons under customary law or Islamic law where one person assumes responsibility for the maintenance and care of the other.

Since life insurance is not a contract of indemnity, insurable interest is required to exist only at the time of the contract and not thereafter. This is in contrast to indemnity policies where insurable interest must exist at the time of the loss.

CONCLUSION

Life insurance policy is founded on the high premium placed on human life, its sanctity and the need to ensure that it is well provided for on the occurrence of any event that tends to compromise it. The requirement of insurable interest is to regulate insurance transaction and insulate it from the acquisition of meddlesome insurance coverage.