Life Insurance Consumer Tips
by Duaine Owings: Plan To Win Insurance

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“Why are they asking me that?”
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Let us suppose you want to purchase life insurance on your own life and make your spouse the beneficiary.

This seems an ordinary scenario. So why does the carrier want to know how much life insurance coverage you have on your spouse’s life? What’s the point?

Believe it or not, there is a logical answer, one that reveals how the life insurance industry thinks and works behind the scenes.

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Insurable interest
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To start, we need to explore the concept of “insurable interest.”

Insurable interest is defined as the reasonable expectation of a financial benefit from the continued existence of the subject of the insurance contract.

For example, in the case of insuring a house,
it is the homeowner who has an insurable interest,
because he can reasonably expect a financial benefit
from the continued existence of his home.

By statute, an insurable interest must be demonstrated before any type of insurance contract can be entered. This requirement helps to eliminate the motivation to commit crime for profit.

After all, if some stranger were listed as the
beneficiary on your homeowner’s insurance policy,
how peacefully would you sleep at night?

The issue of insurable interest becomes much more complex, however, when the subject of the insurance contract is not a home, but a human life. And the potential crime-for-profit would involve murder, not just destruction of property.

But how can a carrier determine the amount of one person’s insurable interest in another human life? Or whether such an insurable interest exists at all?

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Your own life
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In general, a person is assumed to have an insurable interest in his own life. In other words, it is assumed that a person expects to receive benefit from the continued existence of his own life.

Therefore, it would seem acceptable for a person
to purchase life insurance on his own life and
choose anyone he wishes as the beneficiary.

Not so fast! There are several important considerations before a beneficiary is approved by the carrier.

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(1) The States
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First of all, State statutes still require that the beneficiary have an insurable interest. What is interesting here is that each State maintains its own definition of insurable interest, with respect to a life insurance contract.

Of course, State definitions include the standard requirement of financial benefit. But some also include verbiage such as “substantial interest engendered by love and affection in the case of individuals closely related by blood or by law.”

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(2) The courts
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Given the broadness of these State definitions, it is not surprising that the insurable interest of a beneficiary can be challenged in court.

If a court finds that a beneficiary’s insurable interest is insufficient, it can invalidate the life insurance contract as contrary to public policy.

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(3) The carriers
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To prevent such a financial catastrophe for the beneficiary, the carrier has a legal obligation to investigate with reasonable care whether or not the beneficiary indeed has an insurable interest in the continued life of the insured, before issuing the life insurance policy.

The carrier is potentially vulnerable to tort liability even if a court has invalidated the insurance contract as void and unenforceable.

As a consequence, the carriers themselves are motivated to maintain their own strict company guidelines on determining and documenting the beneficiary’s insurable interest. They want to make sure a sound reason exists for one person to benefit from the death of another.

And this is why the carrier want to know
how much life insurance coverage you have
on your spouse’s life.

For example, if two spouses are working or share a debt such as a mortgage, it makes sense for them to have life insurance on each other. If one spouse does not work out of the home, it is still a valid question to ask why no insurance is in force. After all, that person certainly would be costly to replace as a homemaker and care-giver. In either case, insuring only one of them raises questions.

The insurer wants to understand the relationship and to document the insurable interest at the outset, for the protection of all involved.

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Have a question?
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As always, our toll-free line, (800) 559-8777, is open at your convenience. Please do not hesitate to call me with any questions or concerns.

Life Insurance Consumer Tips
by Duaine Owings-Plan To Win Ins Agency

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Good deals for life insurance consumers
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The American economy is in a deepening crisis. In response, the life insurance industry has begun some general belt-tightening.

One approach is to increase the price of new business. After falling for
15 years, term insurance rates are now rising, sometimes by as much as 10-15%. Another approach is to eliminate products with long-term financial guarantees, such as 30-year term insurance. Yet another approach is to tighten underwriting requirements.

But the life insurance industry is not monolithic.

There exist carriers that are financially well-positioned to weather the financial storm and even expand market share. Indeed, the experience of our own firm throughout this year indicates that many buying opportunities exist for consumers.

These strong carriers are keeping the cost of their term insurance very reasonable.  And they are not shying away from long-term price guarantees (eg, universal life products guaranteed through age 121 and term products guaranteed for 30 years).

With regard to underwriting, it has been our experience that some carriers are more willing to make lower offers on higher risk candidates. And they are ready to take a second look at candidates that they previously considered uninsurable.

More than ever, I recommend that consumers carefully shop around to identify the good deals.

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Have a question?
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As always, our toll-free line, (800) 559-8777, is open at your convenience. Please do not hesitate to call me with any questions or concerns.

With best wishes for health and success,

Duaine Owings