Quiz 51: Wills and Trusts
Insurable Interest: In order to have an insurable interest in life insurance, a person must have a reasonable expectation of benefit from the continued life of another. Additionally, the insurable interest must be present when the policy is obtained. The relationship may be founded on money or blood/affinity. At the time that Adia purchased the life insurance policy for her elderly cousin it was not for the benefit of a continued life of her cousin, it was for the monetary coverage of her cousin's anticipated death. Also, because they were third cousins it may be difficult to prove that there was a strong affinity between Adia and her cousin. Therefore, the insurance company was correct in returning the premiums and cancelling the policy. In order to have an insurable interest in property insurance, a person must derive a pecuniary benefit from the preservation and continued existence of the property. At the time of the devastating fire, Adia and her cousin had sold the premises and vacated, thereby relinquishing her interest in the preservation of the premises. Therefore, the insurance company was correct in returning the premiums and cancelling the policy.
Yes, M will commit a misrepresentation on his policy application. If there is a clear record of physician treatment for anxiety that resulted in drugs being prescribed, most people would understand that to fall under emotional, mental, or nervous disorder. The application was broad in the questions asked, so the misrepresentation was clear.
Insurer's Defenses: When it comes to insurance, most policies contain an incontestability clause that prevents a policy from being contested for misstatements by the insured when the policy has been in effect for a stated period of time, usually two years. Three years have passed since the inception of the policy, so under the incontestability clause Patrick's innocent error in response to the question dealing with heart problems or ailments can no longer be contested by the insurer. Additionally, the age misstatement is not cause enough for the insurer to void the policy. They do, however, have the right to adjust the premiums and the coverage for a man who was thirty-three years of age at the time of the contract.