CityPress - - Business -

ILon­wabo writes: would like to know how you can find out if some­one has taken out life in­surance on your life. I feel we have a right to know if somebody else has in­sured our lives with or with­out our knowl­edge. Geral­dine Macpher­son: le­gal mar­ket­ing spe­cial­ist at Lib­erty replies:

Cer­tain rules ap­ply when tak­ing out life cover on some­one else:

To ob­tain a risk ben­e­fit, a life in­sured is un­der­writ­ten. At the very least, this re­quires the com­ple­tion of med­i­cal ques­tions that will be per­sonal to that in­di­vid­ual, so it is highly un­likely that a life pol­icy will be af­fected on the life of a per­son with­out the knowl­edge and con­sent of that in­di­vid­ual.

For ex­am­ple, at Lib­erty, we usu­ally re­quire the life as­sured to sign the ap­pli­ca­tion form.

There must be “in­sur­able in­ter­est” be­tween the life as­sured and pol­i­cy­holder – in other words, there must be a sound rea­son for the cover.

For ex­am­ple, it will have to show that the pol­i­cy­holder will suf­fer a fi­nan­cial loss if the life in­sured should die.

A cou­ple of ex­am­ples are:

Fel­low business own­ers take out life in­surance on each other as a means of se­cur­ing the fund­ing to buy out a de­ceased or dis­abled business owner.

An em­ployer takes out key per­son cover on an em­ployee be­cause if the key em­ployee dies, the em­ployer will need fund­ing to find another em­ployee with the same skills, knowl­edge or ex­per­tise as a re­place­ment, or will have to spend money to up­skill some­one else and the em­ployer will thus suf­fer a fi­nan­cial loss.

A life pol­icy is needed to se­cure a fi­nan­cial obli­ga­tion, such as a debt. Nor­mally, th­ese poli­cies will be owned by the per­son who owes the money, but ceded in se­cu­rity to the fi­nancier. It is un­usual and not stan­dard prac­tice for the fi­nancier to ac­tu­ally own the pol­icy.

In­ter­est­ingly, there is no au­to­matic in­sur­able in­ter­est be­tween a par­ent and a child if a par­ent wants to take out a pol­icy on a child be­cause you have to prove fi­nan­cial loss – in what way will the par­ent suf­fer a fi­nan­cial loss if the child dies?

Like­wise, adult chil­dren might strug­gle to prove a fi­nan­cial loss if a par­ent dies. They will have to prove that the par­ent was still sup­port­ing them or, for ex­am­ple, that they will be li­able for taxes they can­not af­ford. This re­in­forces the idea that it is not sim­ple to ob­tain life cover on a third party, even if they are re­lated.

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