INSURABLE INTEREST- WHO’S LIFE CAN YOU INSURE?
Charles Marais - 24 November 2016
When a person applies for life insurance the element of insurable interest must be present between the life insured and the beneficiaries of such insurance. As a consequence, prospective life insurance policy holders is confronted with the question of what this insurable interest entails. In the simplest terms; whose life can I legally insure and how does one go about to determine that insurable interest is present in any given case?
Insurable interest has been a contentious issue through the ages, not only in a South African context, but as a world-wide phenomenon. Insurable interest refers to the insured’s interest in the non-realisation of the event insured against. Historically emphasis was placed on the monetary, i.e financial implications of the occurrence of the event insured against, this was primarily to safe guard against unlawful wagering or gambling and drawing a distinction between such activities and lawful insurance. Insurable interest was not present where the sum of insurance exceeded the financial loss incurred. A practical example would include a ship owner who insured the contents of his ship should such cargo be damaged or lost at sea. Insurable interest would not be present if the amount insured greatly exceeded the value of the cargo.
The South African courts has however moved away from the monetary test for insurable interest applicable to life assurance products. The arguments raised justly confirms that the purpose of life insurance cannot be solely attributed to the financial implications of death. It is true that financial consequences would arise where the life insured was the primary bread winner in his or her family. Life insurance however safeguards as compensation and consolation for a wide spectrum of personal and abstract needs, including; the pain of losing a loved one, distress, inconvenience and doubts as to future financial stability. Consequently there is no limit imposed on the amount of life insurance to cover any particular life. It does however need to be noted that some insurers do have maximums applicable to their policies.
The overriding factor to be considered when deciding if insurable interest is present, other than direct family ties, is a bond of affection and love between the parties. Similarly an employer has insurable interest in the lives of his employees where the absence of such employees will lead to a disadvantage for the employer. There is however instances where the Courts will rule that insurable interest was not present, the test applied involves an enquiry into the legal convictions of the community- is the interest insured in the best interests of society? An example of this test is the instance where a person enters hospitals and insures the lives of unrelated strangers who is expected to die within a short period of time. Such conduct is not in the best interest of society and fraudulent none the less. Insurable interest would therefore not be present in such a case.
Examples of insurable interest in South Africa, please note that this is not a closed list and that further instances can be formulated in future **;
A person has an interest;
- in his own life.
- in the life of his/her spouse.
- in the life of his/her putative spouse.
- in the life of your former spouse, should a bond of love and affection continue to exist.
- in the life of a cohabitant, including same sex cohabitants.
- in the life of a “spouse” by means of a traditional marriage.
- In the life of her/his fiancé.
- In the life of his/her child, whether such a child is conceived in or out of wedlock- such interest can be curtailed in certain cases in terms of the Long Term Insurance Act.
- In the life of his/her parents.
- In the life of any person who may have a common or contractual law right of support- this interest can be extended to any person who maintains the insured.
- In the life of family members close to him/her, subject to a bond of love and support including a sister, brother, step child, foster parent, uncle, aunt, nephew, cousin, grandchild or a grandparent.
- In the life of an adoptive child/ adoptive parents and all persons as listed in 11 above, subject to a bond of love and support.
- A person who you are reasonable expected to bury.
- An employer in the life of an employee.
- An employer in a key man- where it will be costly to replace such a key man
- An employee in the life of his/her employer
- A business partner in the life of his co-partner(s)
**Prof MFB Reinecke “INSURABLE INTEREST IN THE CONTEXT OF LONG- TERM INSURANCE”
Do you have a question surrounding life insurance? Leave a reply in the comments below.