Non- Indemnity life insurance Contract
Generally, a non-indemnity life insurance contract is that insurance contract that does not indemnify. It pays an agreed benefit when the insured event occurs according to the contractual terms.
They are often described as insurance for the liquidated amount or benefit policies because the exact compensation payable when the insured event occurs is known before the claims are put forward.
This is unlike the indemnity insurance described as a claim for unliquidated damages, as the exact compensation to be paid is not until the loss occurs and claims are put forward. Most importantly life insurance is non-indemnity insurance; and is contingent upon human life such as whole life insurance, terms, and endowment insurance.
The exceptions to life insurance indemnification are personal accident insurance effected by an employer on his employees and mortgage protection insurance.
Personal accident insurance provides the employer with money he would pay in wages to an injured employee. A claim arising in such circumstances allows the insured to be indemnified in respect of any loss say the wages paid to an injured employee who did not work for the period.
The other exception is mortgage protection insurance in which the insured’s insurable interest is limited to the outstanding debt owned to him by the life assured (the creditor).
In this type of insurance, the insurer pays the outstanding debt balance if the insured person that is the borrower dies prior to full repayment of the debt.
It implies that the compensation payable cannot exceed the sum insured or the outstanding balance on the debt.
The usual event upon which life assurance pays the sum assured includes the death of the life assured, the lapse of the agreed period, and the decision of the life assured to discontinue the contract.
In the later events, the life assured may demand surrender value or converting the insurance to a paid-up policy. By surrender value, the accumulated premiums are paid to the insured if the contract is in force for over three years.
The amount payable is smaller than the actual summation of the premiums paid. Then by paid-up policy, it means that the acquired surrender value would be called paid-up value and kept by the insurer until the maturity of the contract. Finally, no further premium is to be paid by the insured if the policy becomes paid up.
The insured may decide to have his life insured paid up due to labor mobility, inability to pay a premium, or change in the reason for the decision to contract life assurance.
The Differences between Indemnity and Non-indemnity
a. Indemnity is paid as a lump sum at policy commencement and is on the basis that the policy will carry on for a specific term. Here, it is expected that the insurer should restore the insured according to contractual terms, to the position he was enjoying immediately before he suffered loss from the happening of the insured events.
b. Non-indemnity commission is paid by the provider in monthly installments over a set period of time. They are those contracts that do not have their insured peril dependent upon human life.