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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance.
The existence of insurable interest is a matter of public policy and is not susceptible to the principle of estoppel. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. (Violeta. Lalican v. Insular Life Assurance Co. Ltd., G.R. No. 183526, 25 Aug. 2009)
When does a Person have Insurable Interest?
A person is deemed to have an insurable interest in the subject matter insured when a person has a relation or connection with or concern in the subject matter, such that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss from its destruction or injury by the happening of the event insured against.
However, in some cases, expectation of benefit from the continued life of that person need not necessarily be of pecuniary nature to have an insurable interest in the life of a person. (De Leon, 2010)
Upon whose life or health does a person have an insurable interest in?
Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
Two General Classes of Life Policies
- Insurance upon one’s life
These are those taken out by the insured upon his own life for the benefit of himself, his Estate, in case it matures only at his death or a third person who may be designated as beneficiary.
The question of insurable interest is immaterial where the policy is procured by the person whose life is insured. A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limits under Art. 2012 in relation to Art. 739 of the New Civil Code. (De Leon, 2010)
- Insurance upon life of another
These are those taken out by the insured upon the life of another. Where a person names himself beneficiary in a policy, he takes on the life of another, he must have insurable interest in the life of the latter. This class includes the insured’s:
- Spouse and Children;
- Any person on whom he depends wholly or in part for Education or support, or in whom he has a pecuniary interest.
- Of any person under a Legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance.
- Of any person upon whose life any estate or interest vested in him Depends. (Sec. 10, IC)
Insurable interest is a cornerstone of the insurance industry, essential for ensuring that insurance serves its intended purpose of risk management and financial protection. By requiring a legitimate financial or legal stake in the insured asset, the principle helps prevent moral hazard, ensures the validity of insurance contracts, and protects against fraud. Understanding insurable interest is crucial for both policyholders and insurers, as it underpins the ethical and practical foundations of insurance practices. As the insurance industry continues to evolve, the principle of insurable interest remains a fundamental aspect of maintaining fairness, integrity, and effectiveness in risk management.
Related Article/s:
Life Insurance and other Non-Life Insurance Policies
Rules on reinstatement of a lapsed policy of life insurance
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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 0917-5772207/ 09778050020.
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