# Insurability **URL:** \ **Category:** Factual Questions\ **Created:** [April 21, 2006, 2:10pm UTC](https://boards.straightdope.com/t/insurability/353614 "2006-04-21T14:10:44Z")\ **Posts on this page:** 16\ **Page:** 1
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [April 21, 2006, 2:10pm UTC](https://boards.straightdope.com/t/insurability/353614/1 "2006-04-21T14:10:44Z")
From another thread, which I didn’t want to hijack, this post: > [@Rick](#): > > The problem is with life insurance you must have an insurable interest in the person that is being insured. Everyone has an insurable interest in themselves. I have an insurable interest in my wife as I would suffer a financial loss if she died. I have no insurable interest in your wife. I would suffer no loss if she dies. Therefore I cannot buy a policy on your wife’s life, but I could buy a policy on my wife’s life. > Any underwriter worth his or her pay would catch this and not issue a policy. 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? ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 21, 2006, 2:18pm UTC](https://boards.straightdope.com/t/insurability/353614/2 "2006-04-21T14:18:46Z")
> [@](#): > > Q: What does insurable interest mean on a life insurance policy? > > Answer: > > If you want to buy a life insurance policy on someone else’s life, you must have an interest in that person remaining alive, or expect emotional or financial loss from that person’s death. This is called an insurable interest. 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. The insurable interest requirement also prevents people from buying a life insurance policy on someone and then causing or hastening that person’s death. [http://www.insurance.com/FAQs/lifeFAQDetail.aspx/index/9](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. ---
**Author:** ![Otto](https://avatars.discourse-cdn.com/v4/letter/o/bbe5ce/32.png) [@Otto](https://boards.straightdope.com/u/Otto)\ **Post date:** [April 21, 2006, 3:34pm UTC](https://boards.straightdope.com/t/insurability/353614/3 "2006-04-21T15:34:23Z")
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? ---
**Author:** ![Antinor01](https://avatars.discourse-cdn.com/v4/letter/a/ecae2f/32.png) [@Antinor01](https://boards.straightdope.com/u/Antinor01)\ **Post date:** [April 21, 2006, 3:40pm UTC](https://boards.straightdope.com/t/insurability/353614/4 "2006-04-21T15:40:24Z")
I am in the insurance industry, licensed to sell life and health insurance. And yes, that quote from > [@](#): > > Gfactor is correct. ---
**Author:** ![brianmelendez](https://avatars.discourse-cdn.com/v4/letter/b/65b543/32.png) [@brianmelendez](https://boards.straightdope.com/u/brianmelendez)\ **Post date:** [April 21, 2006, 4:30pm UTC](https://boards.straightdope.com/t/insurability/353614/5 "2006-04-21T16:30:34Z")
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. ---
**Author:** ![Antinor01](https://avatars.discourse-cdn.com/v4/letter/a/ecae2f/32.png) [@Antinor01](https://boards.straightdope.com/u/Antinor01)\ **Post date:** [April 21, 2006, 5:25pm UTC](https://boards.straightdope.com/t/insurability/353614/6 "2006-04-21T17:25:23Z")
> [@Antinor01](#): > > I am in the insurance industry, licensed to sell life and health insurance. And yes, that quote from is correct. Bah, I meant to use bold tags, not quote. **grumble mutter** ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 21, 2006, 5:48pm UTC](https://boards.straightdope.com/t/insurability/353614/7 "2006-04-21T17:48:28Z")
> [@Otto](#): > > 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? 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](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](http://www.straightdope.com/mailbag/mcriminalprofit.html) ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [April 21, 2006, 7:53pm UTC](https://boards.straightdope.com/t/insurability/353614/8 "2006-04-21T19:53:07Z")
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. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 21, 2006, 8:17pm UTC](https://boards.straightdope.com/t/insurability/353614/9 "2006-04-21T20:17:03Z")
> [@Freddy the Pig](#): > > The doctrine of insurability originated as an insurance company underwriting requirement. According to Keeton & Widiss: > [@](#): > > In the early eighteenth century, underwriters began to issue marine insurance policies in which they agreed not to demand proof of the insured’s interest in the ship or cargo that was the subject of insurance. The origins of the insurable interest doctrine can be traced to the English response to these insurance policies by an Actof Parliament in the year 1746, during the nineteenth year of the reign of George II. The authors trace the doctrine through several other statutes and cases. ---
**Author:** ![Spoons](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/spoons/32/3141_2.png) [@Spoons](https://boards.straightdope.com/u/Spoons)\ **Post date:** [April 22, 2006, 1:21am UTC](https://boards.straightdope.com/t/insurability/353614/10 "2006-04-22T01:21:35Z")
All good replies. I’ll add one more quote that seems to sum it all up: > [@](#): > > …without a requirement of insurable interest, insurance could become not merely a way to transfer risk, but a way to profit by someone else’s loss. 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! ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [April 22, 2006, 1:27am UTC](https://boards.straightdope.com/t/insurability/353614/11 "2006-04-22T01:27:42Z")
> [@Gfactor](#): > > [http://www.insurance.com/FAQs/lifeFAQDetail.aspx/index/9](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. 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. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 22, 2006, 2:25am UTC](https://boards.straightdope.com/t/insurability/353614/12 "2006-04-22T02:25:06Z")
> [@Bill Door](#): > > 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](http://en.wikipedia.org/wiki/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](http://en.wikipedia.org/wiki/Insurance#Contract_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](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. > [@CookingWithGas](#): > > I thought I could buy life insurance on anyone I damn well please 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. ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [April 22, 2006, 4:18am UTC](https://boards.straightdope.com/t/insurability/353614/13 "2006-04-22T04:18:26Z")
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? ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 22, 2006, 4:41am UTC](https://boards.straightdope.com/t/insurability/353614/14 "2006-04-22T04:41:11Z")
> [@Bill Door](#): > > 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: > [@](#): > > (b)(2)No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having at the time when such contract is made, an insurable interest in the person insured. ---
**Author:** ![Cunctator](https://avatars.discourse-cdn.com/v4/letter/c/43a26b/32.png) [@Cunctator](https://boards.straightdope.com/u/Cunctator)\ **Post date:** [April 22, 2006, 7:38am UTC](https://boards.straightdope.com/t/insurability/353614/15 "2006-04-22T07:38:19Z")
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. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [April 22, 2006, 2:56pm UTC](https://boards.straightdope.com/t/insurability/353614/16 "2006-04-22T14:56:35Z")
> [@Cunctator](#): > > 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. Not only that. It appears that Australia has abrogated the insurable interest requirement in all insurance contracts. [MaritimeAdvocate.com is for sale | HugeDomains](http://www.maritimeadvocate.com/i16_insu.php) Very interesting. Thanks.