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Every human being wants the financial security of his/
her life and/or the security of his dependent family
after his death. So, it is a contract to recover even to
some extent the financial uncertainty of the human life.
It is not a contract of indemnity like other insurance as
the life of a person cannot be valued in financial terms.
But it is a kind of contract, in which insurer undertakes
to pay a fixed amount of money on the happening of the
event which may be the death of the insured or expiry Happy family
of a certain period against the regular payment of a
certain money, called premium by the insured. The life insurance contains the element of
security as well as investment.
Life insurance is the most important and popular type of insurance in the present day
business world as it has occupied around 70 to 80 percent of the total insurance business
done in the world.
According to M.N. Mishra, “Life insurance contract may be defined as the contract whereby the
insurer in consideration of a premium undertakes to pay a certain sum of money either on the death
of the insured or expiry of the fixed period.”
According to Insurance Act, 2049, “Since life insurance is a contract in which a particular sum
of money is paid in installment on the basis of age for insuring of the person, with the condition
that the nominee or his dependent will receive a particular sum of amount at death or receives
himself after fixed period expires.”
From the above definition, it deals that life insurance is the contract about life of person
between insurance company and insured, which provides financial protections to the
insured or his/her nominee. It contains the element of investment as well as protection.

Key Point Life insurance is a contract whereby the insurer agrees to pay a certain
sum of money to the insured on the maturity of the policy in consideration
of premium paid by insured to him or to his nominee if the insured dies.

Types of Life Insurance

i. Endowment Life Insurance
Endowment policy is issued for a fixed period of time like 15 years, 20 years, etc.
In this policy, the insured has to pay certain agreed premium upto that specified period
and the sum insured is receivable to the insured on the maturity of the period or to his
nominee or dependent on his/her death, whichever is earlier. It is very popular because
it has the provisions for the economic security for the livelihood of the insured in the old
age or to the family after his/her death. The endowment policy can also be made for the
education or marriage or for both, for one’s children for a fixed period of time.

ii. Whole Life Insurance
In this type of policy, the insured has to pay the premium throughout his life. The
policy holder cannot get the insured amount in his/her life time. The insurer pays the
specified amount of money to the nominee or dependent of the insured on his death. This

88 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 89