A life insurance contract is, in its simplest form, an agreement upon the part of the insurer to pay a specific sum of money upon the death of a certain person, called the insured, to a specific person called the beneficiary. The consideration paid by the insured is called the premium, and is generally a certain amount payable annually or monthly. The agreement may take the form of what is termed an endowment insurance, whereby the insured, after paying the premium for a given number of years, will receive a certain sum of money, or if he dies before the expiration of the period, the amount of the policy will go to the beneficiary. The beneficiary, instead of being a specific person, may be the estate of the insured.
The premiums on life insurance are graded according to the age of the risk. The person insured must undergo a physical examination, as only healthy persons are insured. The amounts of the premiums are determined by average results computed upon the length of life of a large number of persons carefully arranged and tabulated. These results so arranged are called "mortuary tables."
The contract of life insurance, like that of fire insurance, requires the exercise of good faith between the parties, but to avoid the policy the concealment of a material fact not made the subject of an express inquiry must be intentional. A material misrepresentation avoids a policy.
There is no standard form of life insurance policy, and the forms of the different companies vary materially. It is customary to have the policy provide that the application be made a part of the contract, thereby making the statements in the application express warranties. So a denial that one is affected with a disease avoids the policy if untrue. The application often inquires as to what other insurance is carried, and a deceptive statement on this point is fatal to the policy. So also a statement as to age is material and the answer must be correct.
The conditions of the policy as to payment of premiums must be strictly complied with or the policy fails, sickness or other inability to pay being no valid excuse.
If the policy contains no express stipulation to the contrary, the insurance company is liable on a policy if the party insured commits suicide, in case a third party is the beneficiary. If the insured is the beneficiary, the rule will be otherwise. The policy frequently contains a clause exempting the company from liability if the insured commits suicide.
In life insurance the company generally requires immediate notice of death and due proof that the person insured is dead.