[00:00.00]Some unique characteristics of life insurance
[00:03.92]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.
[00:14.29]However,the contingency insured against has certain characteristics that make it unique;
[00:20.45]as a result,the contract insuring against the contingency is different in many respects from other types of insurance.
[00:28.94]The event insured against is an eventual certainty.No one lives forever.
[00:35.66]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.
[00:47.36]The risk in life insurance is not whether the individual is going to die,but when,and the risk increases from year to year.
[00:56.61]The chance of loss under a life insurance contract is greater the second year of the contract,
[01:02.51]as far as the company is concerned,than it was the first year,and so on,until the insured eventually dies.
[01:10.30]Yet,through the mechanism of the law of large numbers,as we shall see,
[01:15.86]the insurance company can promise to pay a specified sum to the beneficiary no matter when death comes.
[01:23.04]There is no possibility of partial loss in life insurance as there is in the case of property and liability insurance.
[01:31.40]Therefore,all policies are cash payment policies.In the event that a loss occurs,the company will pay the face amount of the policy.
[01:41.64]Life insurance is not a contract of indemnity
[01:45.56]The principle of indemnity applies on a modified basis in the case of life insurance.
[01:51.70]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.
[02:01.99]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.
[02:11.13]As a legal principle,every contract of insurance must be supported by an insurable interest,
[02:17.74]but in life insurance,the requirement of insurable interest is applied somewhat differently than in property and liability insurance.
[02:26.44]When the individual taking out the policy is also the insured,there is no legal problem concerning insurable interest.
[02:34.70]The courts have held that every individual has an unlimited insurable interest in his or her own life,
[02:42.04]and that a person may assign that insurable interest to anyone.
[02:46.53]In other words,there is no legal limit to the amount of insurance one may take out on one's own life
[02:53.64]and no legal limitations as to whom one may name as beneficiary.
[02:59.41]The important question of insurable interest arises when the person taking out the insurance is someone other than the person whose life is concerned.
[03:08.55]In such cases,the law requires that an insurable interest exists at the time the contract is taken out.
[03:16.44]There are many relationships that provide the basis for an insurable interest.
[03:21.01]Husbands and wives have an insurable interest in each other;so do partners.
[03:27.12]A corporation may have an insurable interest in the life of one of its executives.
[03:32.64]In most cases,a parent has an insurable interest in the life of a child,
[03:37.78]although the extent of this interest may be limited by statute.
[03:42.33]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.
[03:53.43]Health care insurance outstrips inflation
[03:56.80]THE COST of private medical insurance goes up today by an average of about four per cent,
[04:02.39]nearly three times the rate of inflation.
[04:05.03]Some elderly subscribers face rises as high as 18 per cent.
[04:09.65]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.
[04:20.00]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
[04:30.94]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,
[04:41.65]but some younger people on cheaper policies will get a cut of as much as 15 per cent.
[04:47.16]Premiums are set to rise again later in the year after the Government's decision in the Budget,
[04:52.34]to impose a three per cent tax on various forms of insurance,including private medical insurance.
[04:58.58]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.
[05:07.23]Although the cost of private medical insurance for individuals is rising,
[05:11.67]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,
[05:20.08]instead of twice as in recent years.
[05:22.77]Mr Roger Hymas,BUPA marketing director,said premiums for elderly people were higher because of the demand they made on medical services.
[05:31.70]The average cost of a claim made by patients under 60 was ￡983 last year,
[05:38.13]but the average cost for those over 60 was ￡1,390 and premiums reflected the difference.
[05:45.31]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.
[05:56.08]"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."
[06:07.39]BUPA has also introduced a range of policies which offers lower premiums in return for some restrictions,
[06:14.02]such as limiting treatment to a local hospital or being treated in an NHS paybed.
[06:20.19]Mr Hymas said:"We can often reduce premiums by as much as 15-20 per cent
[06:26.40]while still retaining the essentials of private cover for people willing to change their type of policy."
[06:32.57]He said that although increases of four to five per cent were three times the current level of inflation,
[06:38.45]they represented a major success whent the cost of medical care had been rising by 15-20 per cent a year.
[06:45.79]He said:"We feel the private medical sector has come out of the recession in a remarkably resilient fashion
[06:52.71]with losses in the number of subscribers of no more than two to three per cent."
[06:57.25]Laing and Buisson,the health care analyst,
[07:00.23]said those covered by private medical insurance dropped by more than 280,000 over the past three years.
[07:07.62]The number covered was 6,339,000 last year compared with the peak of 6,625,000 in 1990.
[07:18.41]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. |