Can anyone take out a policy on my life?

2014-10-28 07:00

Life insurance is ­important, especially when it comes to people who are in business ­together, and the rules are pretty straightforward

Lonwabo writes:

I 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.

Your rights on existing policies

What you need to know is that only the policyholder is entitled to deal with the policy.

Once the policy has been taken out, the life insured has no right to cancel it.

The life insured may also not have any information about this policy.

So if, for example, you have your life insured through an employer and you subsequently leave that job, the policy will remain in force until the time that the employer cancels it.

You will not receive any communication pertaining to it and you may cease to be aware of its existence, or you might mistakenly believe that it automatically terminates.

It is important that when you agree to a life policy with an employer or business partner, you have an agreement that the policy will be cancelled if the relationship is terminated.

This agreement will have nothing to do with the life insurance company, but it will be enforceable between the contracting parties.

Finding out about existing policies

In the future, when the Protection of Personal Information Act comes into effect, you can then enquire at the life offices if they have any information on you.

If they do, it will be because you are a policyholder, payer or life assured on a contract of insurance with them.

While they will not be able to disclose policy information that belongs to the policyholder to you, they will be able to give you basic information that will enable you to pursue the matter.

Another solution will be to give your consent to your financial adviser to obtain the policy information on you.

While not all life insurance companies subscribe to these systems, most of them do and the adviser should be able to pick up information where you are either the policyholder or the life assured.

If you are not the policyholder, the adviser is legally prohibited from giving you the information, but can alert you to the fact there is a policy where you are the life assured.

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