THE PURPOSE AND BASIS OF LIFE INSURANCE
The traditional belief is that a contract of non-indemnity insurance such as life assurance is not primarily intended to serve the insured’s pecuniary interests. It is after all per definition not a contract of indemnity. It is nevertheless indisputable that the parties to a true contract of non-indemnity insurance are not motivated by a desire to gain excitement by speculating on the outcome of an uncertain event which is so typical of wagers.
Neither is it their motive to enrich any one of them as would be the case where wagering is contemplated. An event qualifying for life assurance is undoubtedly seen by the parties as an undesirable event. Its occurrence gives rise to demonstrable harm or prejudice and the ensuing condition of imbalance creates a need for consolation or satisfaction. What, then, is in fact the purpose of such a contract?
It is plain that the most important examples of accepted insurable interests are of an abstract and personal nature. This is in line with modern international perceptions. No proper market value can for instance be placed on the fundamental interest a person has in his own life, health or limbs, or in the life of his spouse, fiancée or fiancé. Admittedly, some of the interests which are being treated as insurable, do have financial overtones but that does not contradict their essentially non-pecuniary nature.
On the other hand, interests of a purely pecuniary nature have also been recognized, such as the interest a person has in the life of his debtor. However, it is doubtful whether pure financial interests are proper objects of non-indemnity insurance.
The typical consequences following upon the infringement of an interest insured under a non-indemnity contract of insurance are injury to the insured’s body, limbs or mind; pain and suffering upon bereavement of a beloved like a spouse or a close
family member; distress; grief; mental shock; inconvenience; destitution and insecurity about sustenance; etc. It is precisely against such consequences that insured desire to protect themselves by concluding non-indemnity insurance.
It has been observed that the ordinary concept of loss or damage also comprises non-patrimonial loss or damage following on the infringement of a personal or abstract interest. It seems that the type of loss intended to be covered by a non- indemnity contract,
closely resembles non-patrimonial loss recoverable in delict. If satisfaction could be claimed in delict for such non-patrimonial loss, there clearly could not be any objection to an express or tacit contractual undertaking providing satisfaction for a loss resulting from the infringement of a proper abstract or personal interest.
Against this background it is submitted that the protection of worthy albeit abstract interests of a personal nature is the true purpose or basis of a contract of non- indemnity insurance including life insurance.32 Hence, a true contract of non- indemnity insurance is designed and structured to provide the insured with a sum of money as consolation or satisfaction for the loss or impairment of a worthy personal interest caused by the occurrence of the insured peril.33 If this theory is accepted, it may serve as a guideline when the insurability of new interests crop up for decision.
Having said all this, it must nevertheless be emphasized that the question whether a particular abstract interest which has not yet been recognized as insurable, may indeed be insured, must in the final analysis depend on considerations of public policy.
The general principles of our contract law (as explained above) must therefore be applied. Is the particular contract in other words harmful to public interest on account of its terms or is it not? Does it for instance promote mischiefs similar to those countenanced by wagering contracts? In assessing lawfulness a court must
take into account that a contract voluntarily entered into is not lightly found to be contrary to public policy34 and that the condemnation of wagering has softened.
Where a person takes out life assurance in his own name, he may cede his rights to a third party. It is likewise trite that a person may take out a life policy in his own name and nominate a third party as a beneficiary. In both cases the third party acquires a right contingent on the death of the life insured without himself having to show an insurable interest.
How can this be explained and justified? It would seem important that in both cases the third party acquires a right with the consent of the insured. There is consequently something to be said for the approach followed in some countries mentioned above that a person who feels the need to insure the life of another, may, by obtaining the consent of the life insured, acquire a right to insure.
In any event, it seems wise to require consent by the life insured not merely to confirm the third party’s insurable interest but also to reduce the risk of foul play. This is already observed (albeit indirectly) in those cases where the life insured is required to submit to a medical examination.
In accordance with the principles advocated above, it is suggested that the following examples of interests should be regarded as insurable. In all these instances death of the insured life will invariably cause the insured serious abstract loss such as grief and shock. The list is not intended to constitute a numerus clause’s. Further instances of insurable interest may develop in the course of time and in accordance with the principles advocated above.
- A person has an interest in his own
- A person has an interest in the life of his/her
- A person may also be interested in his former wife/husband where ties of affection and care continue to exist.