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Insurable Interest on Hong Kong Life Insurance Plans

One of the major components of a life insurance application in Hong Kong is the ability of the individual purchasing the policy to prove insurable interest.

A very basic definition of insurable interest is that it is said to be the relationship with the subject of the insurance which is recognized under law as having a legal right to insure that person’s life. Essentially, you must have some associated with a person through which you could have a right to insure them before you are actually allowed to do so.

This concept prevents individuals from taking out life insurance on individuals with whom they have no relationship.

For example, I may well wish to take life insurance out on Bill Gates for the amount of US$1,000,000 but unless I can prove some direct relationship with Mr Gates that would entitle me to US$1,000,000 in the event of his death I will not be allowed to do so.

I may also wish to take a life insurance policy out on my parents, as they are my blood relatives. However, in Hong Kong, unlike most other insurance markets, a blood relationship is not enough to ensure insurable interest. A husband may have insurable interest on his wife, and vice versa, and a parent can have insurable interest on their minor offspring, but a brother does not have automatic insurable interest on his sister nor does a nephew have insurable interest on his uncle.

Proving Insurable Interest in Others

Based on the above, whilst we may have insurable interest in our spouses, and of course we have insurable interest in ourselves, we will usually have to prove our interest in insuring any third party.

To have an insurable interest in any third party you must normally possess a financial interest in their wellbeing. It is for this reason that we were unable to obtain life insurance on Bill Gates’ life in the example above.

However, if Mr. Gates were to owe you some money you would have a financial interest in his life for the amount of the loan, and any interest on the loan. Likewise if you entered into a business partnership with him you may be entitled to take out a life insurance policy on your risk in the event that he dies.

Finally, you are also able to obtain a life insurance policy on an individual who is contractually obligated to you in some way – Key Man life insurance would be an example of this type of insurable interest. A company would suffer financially in the event of the loss of a key employee and can consequently purchase life insurance coverage on that individual.

Third Party Life Insurance

Should a policyholder obtain life insurance coverage on a life other than his own, as in Key Man Life Insurance, the fact that they have done so must be clearly noted in the policy documents. This is to say that the person who is purchasing the life insurance for another person needs to be named in the policy.

Additionally, no more than the financial risk associated with the third party’s death may be covered. If a policyholder is obtaining a life insurance policy for a debtor, he cannot obtain a plan with a face amount of more than the value of the loan.

When is Insurable Interest Required?

Insurable interest is only needed when the contract commences. This is important due to the fact that a policyholder is normally able to assign a plan to an alternate individual. It is also important due to issues like Divorce.

Because of an interesting quirk of life insurance practice, and because insurable interest is required only when the policy is enacted, when a life insurance plan is being purchased to cover an outstanding debt it is possible for the policy to continue running once the debt has been repaid. This means that the creditor may, in fact, be able to receive an additional repayment of the loan.

If you would like to learn more about Assigning a Life Insurance plan in Hong Kong, please click the link.

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If you would like assistance in applying for a Hong Kong life insurance plan, or if you would like advice on a specific aspect of policy applications, please Contact Us to speak to an expert advisor today.

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