Good faith policy

A life insurance policy is considered to be a contract uberrimae fidei (of the utmost good faith). The agreement is usually for the payment of a determined sum on the death of a particular individual or the occurrence of an event calculated on the duration of a particular human life.

Such a policy may be taken out by the person himself or by any other individual who has an interest in that life which must exist at the time the contract is made. Each person has an interest in his own life and spouses are presumed to have an unlimited interest in the lives of each other as set out in the case of Griffiths v Fleming [1909] 1 K.B. 805.

In all other cases interest must be proven. In the event that no insurable interest can be proved then the contract is illegal and any premiums paid, whether in full or not, cannot be recovered from the insurance company.

The liability of the insurance company to pay arises on the death of the party and the satisfaction of any other terms of the contract. Proof usually entails the provision of the relevant sealed and certified copy of a death certificate. Where a person has insured his own life, upon his death his duly qualified executor or administrator may make the claim on behalf of the estate.

There are usually a number of exclusions to the obligation of the insurer to pay the contracted sums, such as cases of suicide or where the individual has deliberately placed himself in jeopardy such as by engaging in sports generally considered to be dangerous. Obviously if the person who is entitled to the benefit of the insurance contract murders the person whose life is insured then no monies will be payable.

In the event that you make an application for and enter into a contract for life insurance section 105 of the Insurance Act, Cap. 310 states that you “(1) … may serve notice of cancellation on the insurance (a) not later than the tenth day from the date which he receives a notice referred to in section 104; or (b) not later than the tenth day from the date on which he first became aware that the contract was entered into, whichever is later”. The notice of cancellation may be in any format once it is written.

Since the utmost good faith on the part of both parties is a requirement of a contract for life insurance, it is usually stated quite explicitly that misrepresentation of any facts in applying for the life insurance coverage will render the contract null and void and relieve the insurer from the obligation to pay.

Omission to disclose facts known to the person applying for the insurance also amounts to a breach of good faith and will void the policy. Section 109 (4) of the Insurance Act qualifies the common law position and states that a policy shall not be voided unless the misstatement was fraudulent or was “material in relation to the risk of the company under the policy” and “was made within 3 years immediately preceding the date on which the policy is sought to be avoided or the date of the death of the person whose life is insured, whichever is the earlier”.

Section 109 of the Insurance Act continues that where the misstatement is as to the age of the insured the policy may not be voided but the sum payable by the insurer may be adjusted accordingly. Where the insurance company is the party that has not acted in good faith then the insured is entitled only to a return of the premiums paid pursuant to the contract as decided in Banque Keyer Ullman SA v Skandia (UK) Insurance Co. Ltd. [1991] 2 A.C. 249.

Generally persons under the age of 18 years have no legal capacity to enter into any kind of contract. However, section 111 of the Insurance Act provides that a person between the age of 10 and 16 years may with his parents or guardians written consent enter into a life insurance contract with respect to his own life or “another life in which the minor has an insurable interest” or take an assignment of such a policy.

Where a minor has reached the age of 16 years he no longer requires parental consent in order to take out a policy but consent remains a requirement if he wishes to assign the benefit to another or to mortgage the policy.

The question of whether or not you require life insurance is a different matter altogether and is best asked of a financial planner.

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