by Guest » Tue Nov 03, 2009 02:04 pm
Me and my boyfriend have been together for 3 years. We live together. He owns the house we now live in and makes the mortgage paments on that property. I pay all the other bills such as food, utilities, internet, cable. I was wanted to get a life insuracne plan to protect me in case something happens to him, just enouph to pay off the house and other expenses. Can I purchase life insurance on him.Or does he need to purchase it and put me as the beneficiary?
Posted: Sun May 30, 2010 02:42 pm Post Subject:
However, if the application wasn't fraudulent, and the insurance company screwed up by issuing it, I can't imagine any court allowing a company to benefit from their own mistake.
What part of "if there's no insurable interest, the policy is void" is incomprehensible? CA Insurance Code Section 280 makes it simple to understand.
If the insured has no insurable interest, the contract is void.
Almost all states have similar language in their insurance laws.It doesn't say "in the first two years". No matter when the discovery is made, void means there was nothing upon which to issue the policy. To pay one claim regardless of the fact is to expose the company to never being able to dispute any other claim under similar circumstances.
The courts cannot force a company to pay a claim that cannot exist. It may have been a mistake to issue the policy, to have collected the premiums even for many years, but if a policy is void, all of the premiums are also refunded.
[The same kinds of things occur in P&C policies, when someone sells/transfers ownership of insured property to another party, the coverage ends at that moment because there is no longer any insurable interest. No company would pay (or could be forced to pay) a claim under those circumstances. And they refund the unearned premium according to the contract (short rate/pro rata/none).]
The company does not "benefit". What benefit are you suggesting? Escaping a death claim? If a person pays no premium, who can collect a benefit? That a premium was paid and later refunded may be unfortunate, but when the insurer or court does what it is required to do and follows the law, what other outcome can be expected?
Again, incidents like this are few and far between, and this discussion is mostly unnecessary.
However, a whole new chapter on the question of insurable interest is being written as we ponder this topic. It's called "Stranger Originated Life Insurance" or STOLI. The courts have long held that "wager policies" are contrary to public policy and are void -- people are not supposed to be able to bet on the life expectancy of another human being at the expense of an insurance company.
STOLI tries to circumvent that by enlisting a person to obtain life insurance on himself or someone in whom he has insurable interest, but with the specific intent to assign ownership to the "gambler" after the policy becomes incontestable in two years. To make it worthwhile, there is compensation/consideration paid to the original owner at the time of assignment.
So, to the insurance company, on the surface everything appears legitimate. The application is truthful. But there is "bad intent" that predates the policy. The NAIC and the states are struggling with this, because, clearly, the party who intends to ultimately obtain and control the policy has no ability to do that through the usual means of applying for insurance because they lack the required insurable interest. They deliberately circumvent the law by relying another person's insurable interest to get there. It's the INTENT behind the formation of the policy that is at the heart of the current debate on how to regulate STOLI.
Fraudulent? That's the problem. It is not "fraudulent" under current state laws, but all recognize that it is hugely problematic. If if can be proved that the intent was to "wager" via life insurance, the policy will be voided as being "contrary to public policy". But being able to prove it is, itself, difficult. So how to properly regulate the scheme is paramount.
There is a very thorough explanation of insurable interest and its history, available for all to see at the following link:
http://www.rmstrnglaw.com/publications/Americas_%20Quest.pdf
It should help to illuminate the mind of anyone who has a dim regard for the whole concept of insurable interest and the validity (or invalidity) of a life insurance policy.
Posted: Sun May 30, 2010 03:09 pm Post Subject:
In order for the insurance company to not pay the death claim because of no insurable interest at the time of the application, wouldn't they first have to contest the death claim? 5 years into the future, how are they going to do this?
I'm not arguing with you in terms of the law. I'm arguing more from the real world practical standpoint. I don't know of any case in which the questions were answered honestly in which the claim did not get paid (after 2 years) because of the lack of insurable interest.
This kind of thing is going to be discovered after the death because the insurance company is going to pay no attention in advance. Yes, the company benefits because paying back 5 years of $1,000 premiums is less than paying a $1,000,000 death claim.
STOLI is a huge issue. The "O" is STOLI is not "originated". It is "owned". There is nothing illegal about selling one's life insurance policy.
One can no longer buy a policy with the intent to sell it without being fraudulent. The applications now asks the question. If the intent is to sell the policy, the application will be turned down. Up to a few years ago, this was not the case.
STOLI is a terrible thing that has the potential to ruin the life insurance industry.
Max, keep up the good work. I enjoy the conversations.
Posted: Sun May 30, 2010 03:17 pm Post Subject:
Max, I've only made it through about 2 pages of your link (thanks for providing) so far.
From the little bit that I've read, it sure appears to me as if the insurance company can't use the lack of insurable interest to avoid paying a death claim. It may impact, however, on who gets to collect. Hopefully, we can continue this conversation.
Posted: Mon May 31, 2010 08:58 pm Post Subject:
In order for the insurance company to not pay the death claim because of no insurable interest at the time of the application, wouldn't they first have to contest the death claim? 5 years into the future, how are they going to do this?
You're right about the timing. Once the death claim has been paid, the insurer's responsibility to the contract/beneficiary has ended. A payment made to the wrong beneficiary, for example, creates a situation where the rightful beneficiary would have to pursue a claim against the party that received the money, not necessarily the insurer. But they may contest insurable interest at any time before making the payment. And they could possibly have the right to bring suit to recover monies even after an erroneous payment (I have never heard of this happening, but anything is possible when lawyers are involved).
I would certainly disagree that we're arguing about anything. I'd prefer to think of it as a "spirited discussion"!
The "O" is STOLI is not "originated". It is "owned". There is nothing illegal about selling one's life insurance policy.
Although we should all agree that ownership of the policy may freely change to anyone or anything -- insurable interest being entirely immaterial -- after it has been issued, I beg to differ with you on your point of the "O".
Here is a definitive answer from the first two paragraphs of a press release from the National Association of Insurance Commissioners that discusses STOLI"
NAIC ADOPTS VIATICAL SETTLEMENTS MODEL ACT REVISIONS
SAN FRANCISCO (June 4, 2007) - The National Association of Insurance Commissioners (NAIC) today adopted amendments to the Viatical Settlements Model Act during the Association's Summer National Meeting in San Francisco.
The Model, which has been widely discussed among state regulators, addresses several issues in the life settlement marketplace, including an emerging type of life insurance practice known as Stranger-Originated Life Insurance (STOLI). The Model strengthens several consumer protections and imposes a five-year ban settling a life insurance policy with specified elements indicative of a STOLI transaction. A life settlement is the transfer of life insurance benefits available under a policy. STOLI transactions are traditionally defined as life insurance policies manufactured for the purpose of settling in the secondary market.
If insurable interest was not critical at the time of policy application/issue, STOLI could easily refer to "Stranger-Owned". But that's the heart of this discussion.
From the little bit that I've read,it sure appears to me as if the insurance company can't use the lack of insurable interest to avoid paying a death claim.
In the first linked article above, the very first paragraph tells us that "wager policies" (which is essentially what STOLI seeks to be) are VOID -- meaning, simply, not of legal effect. It really doesn't matter when the discovery is made, but the fact that it is discovered (by the insurer or another party) requires all parties to be restored to the condition that existed in the moment prior to the execution of the contract -- when no insurance was in force. Money paid has to be returned, no claim is payable. Both parties receive equal benefit -- even though it appears that the beneficiary might be the "loser" and the insurer might be the "winner". That's merely the "aleatory" nature of insurance.
It took some effort, but I located another article that all may find useful. It's not nearly as technical as the previous one, and it does give some references to fairly recent case law that are on point with our discussion here.
Of concern also, as was noted in the first linked article, is the lack of uniformity in the wording of (and application by the courts when it comes to interpreting) state laws on the subject.
http://www.kattenwomen.com/files/Publication/c8d5fefd-c0af-4d0e-be72-38c253c03df0/Presentation/PublicationAttachment/60226eb1-3fd8-4a0a-8f65-3e0ee8406261/Coan--Law360--New_Developments09.pdf
The fourth paragraphs states:
In most states, if a life policy is successfully contested for lack of insurable interest, the coverage is retroactively canceled and all premiums paid are returned to the holder of the policy.
[[ I must also admit that the author manages to confuse the definition of STOLI by using both terms "owned" and "originated" equally, so I defer to the NAIC's "originated", which is the same as California is currently working on, and allow your use of "owned" with objections noted. ]]
So who's going to contest the insurable interest? Probably not the beneficiary who's about to receive a check. Most likely the insurer. But not merely as a means to avoid paying a death claim -- insurance companies stay in business by paying claims -- but to avoid having to pay a claim on a policy that legally should never have existed.
Yes, applications are also beginning to change, but that's not uniform either. Just like some policies now invoke language revolving around the topic of "terrorism" in addition to the topic of "war or acts of war".
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Posted: Fri Jun 04, 2010 02:49 pm Post Subject: Insurable interest for engaged couples
I live in Washington, DC and am thinking about moving in with my boyfriend, whom I plan to marry, eventually. I would like to take out a life insurance policy on him. If we live together and become engaged, is there insurable interest? I would also depend on him finacially.
Posted: Fri Jun 04, 2010 09:17 pm Post Subject:
The answer is "yes". You wouldn't have a problem taking out a policy on him.
Posted: Sat Jun 05, 2010 07:14 am Post Subject:
If we live together and become engaged, is there insurable interest? I would also depend on him finacially.
As I discussed above, there must be a legitimate financial connection. If you can easily demonstrate your financial dependence upon your boyfriend, then you have satisfied that prong of the three prong test. You also must still be able to satisfy both of the other two prongs.
Ordinarily, boyfriend-girlfriend is not easily seen as creating an insurable interest. Having a ring and a wedding date shows that things between the two of you is a bit more solid and valuable, and could be accepted as proof of the connection.
Posted: Fri Dec 03, 2010 12:56 am Post Subject: life insurance
My boyfriend is 55 and I am 39. We have been together for 12 yrs now.Can I take out a life insurance policy on him?
Posted: Fri Dec 03, 2010 05:50 am Post Subject:
You might want to take out a marriage license first. If you want to apply for a life insurance policy on him, you have to be able to prove insurable interest. The number of years you "have been together" is immaterial.
Posted: Sun Dec 12, 2010 07:00 am Post Subject:
Showing insurable interest is typically pretty easy. If you live with him, it won't be a problem.
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