Insurable Interest
An insurable interest must exist at the time of application for a life insurance policy to be taken out.
An unlimited insurable interest is deemed to exist on one’s own life and between the lives of legally married spouses and nowadays, between civil partners.
FACT: An unmarried co-habiting couple do not have an unlimited insurable interest between themselves. |
A limited insurable interest can exist between other parties:
For example, Person A owes £20,000 to Person B.
Person B can take out a £20,000 life insurance policy on Person A.
The policy will pay £20,000 to Person B if Person A died.
A policy taken out when an insurable interest existed can remain in force, and will pay out, even if the insurable interest no longer exists.
The technical bit:
The main source of law on insurable interest is the Life Assurance Act 1774, which remains in force.
The Act bans the making of insurances where there is no insurable interest, and renders any policy issued in such circumstances null and void.
Case law has established that the insurable interest need only exist at the time the policy is taken-out.
There are three classes, in law, of insurable interest:
Natural affection:
One has an unlimited insurable interest in one's own
life and that of one's spouse.
Potential financial loss:
There is an open class where one can insure a life in which one has a pecuniary interest, provided (in England and Wales) that one also has a legal or equitable interest.
Statutory interest:
The Civil Partnership Act 2004 gives each person in a civil partnership an insurable interest in the life of the other, and the Married Women's Property Act 1882 confirmed the right of a woman to insure her own life or that of her husband.
