From another thread, which I didn’t want to hijack, this post:
I thought I could buy life insurance on anyone I damn well please. Are you in the insurance industry? If not, can someone who is comment?
From another thread, which I didn’t want to hijack, this post:
I thought I could buy life insurance on anyone I damn well please. Are you in the insurance industry? If not, can someone who is comment?
http://www.insurance.com/FAQs/lifeFAQDetail.aspx/index/9
The answer goes on for several paragraphs. In the interest of fair use, I have excerpted only one. And it captures the spirit of insurable interest doctrine.
I don’t recall the details of the Malloy case. Was the insurable interest doctrine in effect at the time (1920s or 30s)? Did one of the Murder Trust have an insurable interest in him or was that falsified?
I am in the insurance industry, licensed to sell life and health insurance. And yes, that quote from
is correct.
I’m a lawyer, and have occasionally practiced insurance law. The quote from Rick in the OP, and Gfactor’s post in this thread, are correct. The requirement of an insurable interest is what distinguishes insurance from gambling. If you bet on the outcome of an event in which you have no insurable interest, then you’re just placing a wager.
Bah, I meant to use bold tags, not quote. grumble mutter
According to Robert Keeton & Alan Widiss, *Insurance Law * (1988), the New York Insurance Law did not include insurable interest provisions until 1939. The Malloy case happened in '33, according to Wikipedia. http://en.wikipedia.org/wiki/Michael_Malloy
A court might have recognized a common law insurable interest doctrine, of course. But even if the killers had tried to collect the result would have been overdetermined because of the slayer rule. http://www.straightdope.com/mailbag/mcriminalprofit.html
The doctrine of insurability originated as an insurance company underwriting requirement. It’s common sense if you’re writing insurance–if you sell me insurance on my property, I have a vested interest in my property remaining intact, and am likely to take at least minimal care of it. If you sell me insurance on your property, I don’t give a rip whether you take care of it or not; and I’m more likely to buy the insurance precisely because you take crappy care of it.
Of course, this doesn’t eliminate the problem–we all know of cases where people neglect their property, or even actively destroy it (which is illegal), in order to collect insurance. But it minimizes it.
The reason for writing the requirement into law, I imagine, was to prevent criminals from colluding with corrupt insurance agents or companies. Note that the Wikipedia article says that the Malloy plotters probably worked “with the assistance of a corrupt insurance agent”. With the requirement a matter of law, even if an insurance company was foolish (or corrupt) enough to sell you a policy where you didn’t have an interest, you couldn’t collect on it.
According to Keeton & Widiss:
The authors trace the doctrine through several other statutes and cases.
All good replies. I’ll add one more quote that seems to sum it all up:
Source: Underwriting Essentials. (Toronto: The Insurance Institute of Canada. 2004), page 2-14.
My clients at the Institute didn’t put my name on the book. Well it was a work for hire. But, dammit, I wrote that book!
The quote you gave included this phrase *“Without this requirement, it would be very easy to make a living by purchasing life insurance policies on elderly strangers, and then collecting the proceeds when they died.” * which I have to question. How would it be possible to make a living doing this? Surely the insurance policies are set up according to the actuarial tables so that no one could profit from such an arrangement, at least long term. If I wanted to insure the lives of a bunch of 90 year old people, the yearly premiums will be high enough so that the insurance company makes a profit, whether I have an insurable interest or not.
It implies that life insurance is a money making proposition, which it most assuredly is not, no more than lottery tickets.
I agree. The second reason given in the quoted material–the risk of hastening the death to collect on the policy (this is called “moral hazard”)-- seems more persuasive. Life insurance for the elderly is expensive and would theoretically be underwritten so that it is a winning proposition for the insurer–not the insured. The payout is the same regardless of the owner or beneficiary of the policy. On any individual policy and insurer may lose money (if the insured dies a few months after the policy is issued, for example), but on average, they will win. Ditto Casinos. In fact, both industries are similar in two ways. They like “winners,” because they tend to encourage the perception that winning is common. And they both build a “house advantage” into the system. If they didn’t, there’d be no financial reason for them to operate.
Nevertheless, both reasons are frequently offered as justifications for the rule (along with the more general principle of indemnity).
There is something to the idea that a stranger should not profit from another’s loss (as Spoons says). It explains the underwriting rule requiring insurable interest, but not the related rule that the insurable interest need only exist at the time the insurance is purchased. http://www.ins.state.ny.us/rg030717.htm
The insurance/gambling distinction is weakened by the same rule, which has been criticized on both of these grounds. And there is another problem with the gambling theory: We permit people to speculate about other things like stocks, options, derivatives, investments, commodity futures–why not insurance?
The moral hazard justification is harder to shake. Even if claims made by murderers are legally unenforceable, not every murderer will be caught. And in marginal cases, the murderer might not be charged or convicted. That means that the insurer will incur costs proving that it is not liable, and sometimes will be required to pay when it shouldn’t.
More fundamentally, there is a negative justification. Why should you be allowed to insure the life of a stranger or property in which you have no interest? Is there a good reason to do it? It sure looks suspicious, and the retort that one can contract for whatever one wants does not offer much solace.
At any rate, whether it is justified or not, it is the law and it is part of the life insurance underwriting practice. That was the OP’s question.
I believe the OP has been answered. Allow me to summarize: No you can’t. The reasons for the rule are a little controversial, but the rule itself is part of basic insurance law. Moreover, there is no good reason for you to be able to insure the life of a stranger. You need an insurable interest.
All right, how about this. I am in a business where I travel quite frequently, as do many of my colleagues. I will occasionally, in a joking manner, offer somebody a few dollars to buy flight insurance with me as a beneficiary, saying “I don’t know, I just feel lucky.” Would insurance law allow that? Bear in mind it’s been at least 10 years since I’ve seen one of those vending machines in an airport, and they were a sucker bet from the word go, but would it be legal?
Legal is such a mushy word. You wouldn’t go to jail. Would you be able to claim benefits? Probably not. For example, check out section 3205 of the New York Insurance Law:
The traditional requirement that the policyowner have an insurable interest in the life insured was removed from Australian life insurance law under the revised *Life Insurance Act * 1995.
The decision in Australia to remove the requirement for insurable interest was based on consideration of the following issues:
it was no longer seen as an effective protection against the risk of moral hazard. Analysis of murders in Australia showed that, in most cases, the murderer has, or did have, an insurable interest in his victim. It was felt also that the criminal law provided sufficient protection against the possibility of the murder of a life insured by a policyholder.
the requirement for insurable interest could be circumvented easily anyway via the assignment of a policy, immediately after inception, to a third party.
enforcement of the insurable interest requirement is reliant on the willingness of insurers to deny claims under policies taken out by people who lacked interest. The experience of Australian insurers suggested that they generally did not deny claims on these grounds.
Not only that. It appears that Australia has abrogated the insurable interest requirement in all insurance contracts. MaritimeAdvocate.com is for sale | HugeDomains
Very interesting. Thanks.