Study Notes for the Long Term Insurance Examination (2011 Edition)

(ii)(iii)Debts: it is legally possible to insure your debtor, have the debtrepaid, keep the policy in force, and be "paid again" in due timeby the insurer.Assignment: a policyowner is capable of assigning a properlyarranged life insurance contract to a third party even though thelatter has no insurable interest in the life insured, provided thatthis is not a premeditated act of getting round the requirement forinsurable interest. The latter act will be ineffective on the groundsthat it is done for the purpose of defeating the object of a statute,and the contract is indeed void as from inception because the defacto insured (i.e. the intended assignee) has not the requiredinsurable interest. Therefore, what matters is the intention of thepolicyowner when he is effecting a life policy. Taking out a lifepolicy with the general intention of assigning it is legitimate, butdoing so with the intention of assigning it to a specified personwho has no insurable interest in the life insured is another matter.1.2.2 Duty of DisclosureThis concerns another important insurance principle, that of utmostgood faith. Put simply, utmost good faith requires the disclosure of all materialfacts, whether the insurer requests them or not. A material fact is legallydefined as ‘every circumstance which would influence the judgment of a prudentinsurer in fixing the premium, or determining whether he will accept the risk’.Some points to note:(a)What to disclose: clearly, the insurer wishes to know all important facts,but you cannot be expected to disclose what you reasonably cannot beexpected to know. Some conditions, for example, may be easilyrecognisable to qualified doctors, but the average layman cannot beexpected to self-diagnose and reveal such things.Case 1 At law insurance applicants are required to disclose materialfacts to the insurersOperating a trading firm in the Guangdong Province, the policyownereffected a life insurance policy. He suffered from recurrent fever threemonths later for over two months, and finally died of cancer. From themedical report of a hospital on the Mainland, the insurer noted that thedeceased had complained of tiredness and lack of strength the year before.On the other hand, it also noted that when he was asked in the applicationform if he had in the past three months experienced or sustained symptoms oftiredness for more than a week, he replied "no". The insurer thereforerejected the claim on account of a material non-disclosure.1/5