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Insurable Interest – why grim reapers lose their fortune

Posted 22 November, 2015 by Surely
in Technical Smechnical

After Sept 11 attacks on USA, Osama Bin Laden became an internationally wanted man.
Many wanted him dead and I was hoping to capitalise on that fact.
I went to buy life insurance on him.
In 2011, his death made me a rich man.

What ?! They Jover-Chewed me ?

What ?! They Jover-Chewed me ?

Then I woke up from my nap.

Fortunately the scenario in Paragraph 1 can never happen due to the principle of Insurable Interest.
What exactly is insurable interest ?
A person, buying an insurance policy for an individual or property, must have a reasonable concern about the Insured person/property.

In property insurance, it is easily defined by ownership.
However for life insurance, it is hard to equate what is a reasonable concern.
You may be reasonably concerned over your boyfriend or that aunt living alone in Redhill.
The daddy of the family who is the sole breadwinner – of course he is a reasonable concern !

Newton's Law ?

Newton’s Law ?

Luckily (or unfortunately in some case), Singapore Insurance Law has defined insurance interest for us. Here is an extract from Chap 142 Sec 57

A life policy insuring the life of a person which is issued by a licensed insurer shall be void unless
(a) the person effecting the insurance has an insurable interest in the life which is insured at the time the insurance is effected;
(b) the life which is insured is that of —
(i) the person effecting the insurance
(ii) his spouse at the time the insurance is effected;
(iii) his child or ward under the age of 18 years at the time the insurance is effected; or
(iv) any other person on whom the person effecting the insurance is, at the time the insurance is effected, wholly or partly dependant; or
(c) the life policy is one in respect of which all of the conditions referred to in subsection (2A) or (2B) are satisfied.

Enough of legalese. Simple English please.

Effectively, you are able to insure
1) Yourself.
2) Your husband or wife
3) Your child or a ward under your guidance who are under the age of 18
4) The one who you are dependent on.

Okay fine. Why so ?

Can you imagine a world without insurable interest ?
Rascals like me may buy insurance for wanted criminals for profiteering.
Actually this was a real life problem before insurable interest was legalized in Great Britain under Life Assurance Act 1774.

In addition, without insurable interest, it creates a huge moral hazard.
A murderer may buy insurance for his target and benefits financially from it, especially when he is not caught.

Grim Reaper would be millionaires if there is no insurable interest

Grim Reapers – no longer the wealthiest men on Earth. And Hell.

BORING …. Tell me something interesting.

You may not realize – insurable interest may NOT be required in the whole course of contract.
If you examine Insurance Act on this, insurable interest must be present at the inception of the life policy.
Your spouse may not be your spouse forever – you may divorce that drunkard and abusive partner after some time.
Nevertheless, if you are willing to continue paying for the premium, you are still entitled to claim when the time comes.

Conversely in property insurance, insurable interest is not mandatory at start of policy.
It became a requirement at the point of claim.
When you are taking over the ownership of 2nd hand car, you usually purchase the vehicle insurance first.
The insurer does not ask for your LTA transfer but issue the cover note anyway.
Only at the point of a claim, the insurer will check if the vehicle is indeed owned by you.

Conclusion

To be honest, it is not likely that a Singapore insurer will go against the law to allow you to insure someone illegally.
Nevertheless, it is good to know so that you can banish the thought of insuring the Interpol Most Wanted list.

Lastly, without insurable interest, those Grim Reapers cannot make money out of their professions.
Perhaps its time for us to burn some paper money for these poor souls.

www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

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