In the early days of evolution of insurance it was used as a
means of gambling – as insurance on the lives of kings (purchased by strangers)
and this led to the banning of life insurance in France ,
Holland and Sweden during the sixteenth and seventeenth
centuries. We have a good example for the notorious abuse of insurance that
occurred in Pennsylvania
in the nineteenth century. ‘Six men obtained an insurance policy on an elderly
man, who continued to live longer than expected. Understandably, the premiums
on the old man were high. Frustrated by the high costs and impatient for the
pay off, the men murdered the old man, a crime for which they were hanged. The
ability of a person to buy insurance on the life of a stranger would create a
moral hazard wherein the persons owning the insurance policy stand to profit
from the death of the insured.’ UK
provided leadership to all by passing legislation that prohibited insurance
contracts if no insurable interest could be proved [the Life Assurance Act 1774].
It was held in Alamai v Positive Government Security Life
Insurance Co. (1898) [23 Bom.191] that insurance for a term of years on the
life of a person, in whom there is no interest, is void.
Key words:
Insurable interest
Moral hazard
The Life Assurance Act, 1774
Key words:
Insurable interest
Moral hazard
The Life Assurance Act, 1774
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