Some unique characteristics of life insurance
Life insurance is a risk-pooling plan,an economic device through which the risk of premature death is transferred from the individual to the group.
However,the contingency insured against has certain characteristics that make it unique;
as a result,the contract insuring against the contingency is different in many respects from other types of insurance.
The event insured against is an eventual certainty.No one lives forever.
Yet life insurance does not violate the requirements of an insurable risk,for it is not the possibility of death itself that is insured,but rather untimely death.
The risk in life insurance is not whether the individual is going to die,but when,and the risk increases from year to year.
The chance of loss under a life insurance contract is greater the second year of the contract,
as far as the company is concerned,than it was the first year,and so on,until the insured eventually dies.
Yet,through the mechanism of the law of large numbers,as we shall see,
the insurance company can promise to pay a specified sum to the beneficiary no matter when death comes.
There is no possibility of partial loss in life insurance as there is in the case of property and liability insurance.
Therefore,all policies are cash payment policies.In the event that a loss occurs,the company will pay the face amount of the policy.
Life insurance is not a contract of indemnity
The principle of indemnity applies on a modified basis in the case of life insurance.
In most lines of insurance,an attempt is made to put the individual back in exactly the same financial position after a loss as before the loss.
For obvious reasons,this is not possible in life insurance.The simple fact of the matter is that we cannot place a value on a human life.
As a legal principle,every contract of insurance must be supported by an insurable interest,
but in life insurance,the requirement of insurable interest is applied somewhat differently than in property and liability insurance.
When the individual taking out the policy is also the insured,there is no legal problem concerning insurable interest.
The courts have held that every individual has an unlimited insurable interest in his or her own life,
and that a person may assign that insurable interest to anyone.
In other words,there is no legal limit to the amount of insurance one may take out on one's own life
and no legal limitations as to whom one may name as beneficiary.
The important question of insurable interest arises when the person taking out the insurance is someone other than the person whose life is concerned.
In such cases,the law requires that an insurable interest exists at the time the contract is taken out.
There are many relationships that provide the basis for an insurable interest.
Husbands and wives have an insurable interest in each other;so do partners.
A corporation may have an insurable interest in the life of one of its executives.
In most cases,a parent has an insurable interest in the life of a child,
although the extent of this interest may be limited by statute.
A creditor has an insurable interest in the life of a debtor,although this too is usually confined by statute to the amount of the debt or slightly more.
Health care insurance outstrips inflation
THE COST of private medical insurance goes up today by an average of about four per cent,
nearly three times the rate of inflation.
Some elderly subscribers face rises as high as 18 per cent.
The rises come at a time when the number of people taking out private medical insurance is falling after several steep above-inflation increases in recent years.
This year's increases are the smallest for several years and some subscribers,particularly younger ones,will see no increase at all or even a cut in the cost of premium
BUPA,the largest private health group,is increasing premiums by between 10 and 18.2 per cent for older subscribers on higher scales of cover,
but some younger people on cheaper policies will get a cut of as much as 15 per cent.
Premiums are set to rise again later in the year after the Government's decision in the Budget,
to impose a three per cent tax on various forms of insurance,including private medical insurance.
A spokesman for BUPA said no decision had yet been taken on how this tax would affect premiums or whether it would be partially absorbed.
Although the cost of private medical insurance for individuals is rising,
BUPA is freezing the cost of its company scheme until next July and says that from now prices will be reviewed only once a year,
instead of twice as in recent years.
Mr Roger Hymas,BUPA marketing director,said premiums for elderly people were higher because of the demand they made on medical services.
The average cost of a claim made by patients under 60 was ￡983 last year,
but the average cost for those over 60 was ￡1,390 and premiums reflected the difference.
He said:"We are very conscious that many people have been loyal subscribers without making claims over many years yet find their premiums rise sharply as they get older.
"We are working on a scheme to smooth the cost over a lifetime so that people may pay a little more in their younger years for the sake of minimising increases when they get older."
BUPA has also introduced a range of policies which offers lower premiums in return for some restrictions,
such as limiting treatment to a local hospital or being treated in an NHS paybed.
Mr Hymas said:"We can often reduce premiums by as much as 15-20 per cent
while still retaining the essentials of private cover for people willing to change their type of policy."
He said that although increases of four to five per cent were three times the current level of inflation,
they represented a major success whent the cost of medical care had been rising by 15-20 per cent a year.
He said:"We feel the private medical sector has come out of the recession in a remarkably resilient fashion
with losses in the number of subscribers of no more than two to three per cent."
Laing and Buisson,the health care analyst,
said those covered by private medical insurance dropped by more than 280,000 over the past three years.
The number covered was 6,339,000 last year compared with the peak of 6,625,000 in 1990.
This represents just under 11 per cent of the population and Laing and Buisson estimates the proportion will reach 18 per cent by the year 2000.