How Life Insurance Policy Is Not A Contract Of Indemnity

How is a Life Insurance Policy Not a Contract of Indemnity?

Life Insurance policies provide financial protection & long-term savings at affordable premiums. Learn more about life insurance plans below.

Written by : Raman Sharma

Reviewed by : Gaurav Nagpal

Gaurav Nagpal

2022-05-22

1163 Views

5 minutes read

Locate branch
Resume journey
Pay Premium
Contact us

Are you wondering why life insurance is not a contract of indemnity? Perhaps you want to learn the difference between them. With a mere 2.82% of India's population having life insurance coverage, it becomes essential to ensure that people are fully informed about its features and essence. Keep reading this article to understand the concepts of life insurance and indemnity contracts and how they are different.

Table Of Content:

What is a Contract of Indemnity?

Elaborated in section 124 of the Indian Contract Act, a contract of indemnity is a contract between 2 parties or people where one party promises to indemnify the other party in case the promised party suffers from any loss or incurs any expenses or to protect them against any legal consequences which were caused by a third party or the promiser (first-party) himself.

For example, if A states that he shall compensate for the losses incurred by B by the act of a third party. So, the whole point of an indemnity contract is that it is a commercial contract that protects the affected party from any loss or liability incurred.

What is Life Insurance?

To define life insurance, we can say that it is a contract between an insurance policyholder and an insurance company where the insurer pays the promised amount of money in exchange for a premium. It is received upon the death of the insured person or after a set period.

Understand what is life insurance premium?

Life coverage is then given to support the family or loved ones in case of an unfortunate event.

Did You Know?

In 2023, India’s insurance premium penetration accounted for 4% of the national GDP.

Source: India Brand Equity Foundation

Claim Settlement Ratio

Difference Between Contract of Indemnity and Life Insurance

There is a significant difference between a contract of indemnity and life insurance as life insurance is a contract of guarantee instead. Many people assume incorrectly that a contract of insurance is a contract of indemnity. To help understand the differences better, here’s a table which highlights their differences.

Key PointsLife InsuranceContract of Indemnity

Definition

An insurance contract that covers the life risk of the policyholder

It is a form of security or protection against a loss, either financial or physical

Form

It is a type of investment

It is a contract

Length of contract

It’s a long-term investment

It’s a short-term contract

Premiums

Premiums are paid throughout the year

Premiums are paid in lump sum

Insurance Claim

Insurance is paid either after the death of a policyholder or after maturity

Loss is reimbursed on the occurrence of an uncertain event

Insurable Interest

The amount must be present at the time of the contract

The amount must be present both at the time of contract and loss

Policy Value

Value can be determined based on the premium policy

The amount payable is limited to the losses suffered

The insured pays the premium to the insurer to secure a certain sum payable to their representatives in the event of death. There is no inquisition of indemnification in such a matter for the loss occurring from death as it cannot be measured in terms of money. Life insurance is chosen as a method of saving; the concept of indemnity is unknown to it.

Conclusion

A life insurance policy likewise safeguards your family against any unforeseen possibility, and it is the best tool to protect their future, even when you're not there. Choosing a life insurance policy is surprisingly simple. By opting for a policy from a massive assortment of life insurance policies by Canara HSBC Life Insurance, one can stay ahead of the future while also receiving the best possible benefits.

Take a step towards safety and sustainability by choosing Canara HSBC Life Insurance today.

Glossary:

  • Indian Contract Act: This law sets and prescribes laws relating to India. It is the key act regulating Indian Contract Law.
  • Commercial Contract: A written or verbal agreement between businesses or individuals engaged in commercial activities.
  • Sum Assured: This is a fixed amount paid to the nominee of a life insurance plan in the event of a policyholder’s demise.
  • Insurable Interest: A type of investment that protects an object or person from some kind of financial loss.
glossary-img
Uncertain About Insurance
AdBanner-desktop

Life Insurance - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan
  • 3 Plan options
  • Life cover till 99 years
  • Steady income benefit
  • Block your premium at inception

Start Young, Pay Less, Stay Secured

Young Term Plan
  • Life cover till 99 years
  • Coverage for spouse
  • Block your premium rate
  • Covers 40 critical illness

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus
  • 4 Plan options
  • Life cover + Guaranteed benefits
  • Accidental death benefit
  • Premium protection cover

Recent Blogs

How to Choose the Best Savings Plan in India?
02 Aug '24
889 Views
Read More
Life Insurance
Reasons Why Stay At Home Parents Need Insurance Too
02 Aug '24
873 Views
Work hours extending beyond the standard nine-to-five grind, no provision of leave, juggling work between multiple departments, and no payment-welcome to the life of a stay-at-home parent.
Read More
Life Insurance
Making Claim Settlement Easy for Your Beneficiaries : Canara HSBC Life Insurance
02 Aug '24
872 Views
Making Claim Settlement Easy for Your Beneficiaries : Canara HSBC Life Insurance introduces 1 day settlement of death claims, with 98.12% claim settlement ratio
Read More
Life Insurance

FAQs related to Contract of Indemnity

An Indemnification contract transfers risk between contracting parties through a non-insurance agreement. Insurance transfers risk from one party to another in exchange for payment.

Life insurance is not a contract of indemnity. An insurer does not promise to indemnify a policyholder on any loss in maturity or death.

An example of indemnity of contract is when an insurance policy reimburses a policyholder for the financial loss incurred due to a covered event, such as damage to property or medical expenses. Indemnity ensures that the insured is restored to the same financial position as before the loss, as per the terms of the contract.

It’s a legal agreement by one party to hold another party blameless – not liable – for potential losses or damages.