Unit 3 DB: Serving Whose Interests In Insurance Risk Managem

Unit 3 Db Serving Whose Interestsfin401 Insurance Risk Managemen

Describe the nature and purposes of the principle of insurable interest. Do you agree or disagree with AIG’s denial of the claim? Why or why not?

Paper For Above instruction

The principle of insurable interest is a fundamental concept in insurance law that requires the insured to have a financial or emotional stake in the continued existence of the insured subject. This principle ensures that the policyholder can only insure interests that they stand to suffer a direct financial loss from if the insured event occurs, thereby preventing speculative or gambling policies and promoting the morality of insurance practices. The primary purposes of insurable interest include limiting moral hazards, reducing moral risk, and maintaining the integrity of insurance markets (Gandhi & Kothari, 2016).

In essence, an insurable interest must exist at the time the insurance policy is initiated and, in most cases, at the time of claim. This interest can be rooted in ownership, contractual relationship, or familial ties, depending on the jurisdiction and specific laws governing insurance contracts. For example, property insurance typically requires a property owner to have an insurable interest in the property, while life insurance can require an applicant to have a close relationship with the deceased, such as a family member or business partner (Bailey & Simon, 2020).

In the case of Jim and James, the dispute revolves around whether Jim had an insurable interest in James’s life when he took out the policy. Jim had made premium payments on a life insurance policy insuring James’s life, with Jim as the beneficiary. The insurer, AIG, denied the claim based on the allegation that there was no insurable interest at the time of policy issuance or at the time of James’s death. A key legal contention here is that Jim’s insurable interest was questionable because their relationship was primarily business-related, with no personal or familial ties indicating a stake sufficient to qualify as an insurable interest under the law (Erdman & Lloyd, 2017).

According to insurance law, insurable interest in life insurance is often limited to close family members, spouses, or individuals with a financial dependency or contractual relationship. Courts generally recognize that a business partner may have an insurable interest if they stand to suffer a financial loss from the death of the other partner, especially if the partnership agreement explicitly or implicitly supports such an interest (Turner, 2018). Therefore, Jim’s claim hinges on whether his business relationship with James created sufficient insurable interest at the time the policy was purchased and at the time of James’s death.

I disagree with AIG’s denial of the claim. Jim and James co-founded a business, J&J Partners, and Jim actively managed daily operations, indicating a significant financial and emotional investment. This close business relationship likely qualifies as an insurable interest under laws recognizing business partnerships. The courts have historically upheld life insurance policies bought by business partners on each other’s lives, provided the partnership exists at the time of policy issuance and the partners have a legitimate financial interest (Reed, 2019). Furthermore, Jim’s consistent premium payments demonstrate his ongoing financial stake in James’s life, reinforcing the existence of an insurable interest.

From an ethical perspective, policyholders should be allowed to insure lives with whom they have a tangible financial interest to maintain the integrity of the insurance system and prevent moral hazard. Denying such claims based solely on the absence of a personal relationship neglects the complex economic realities of modern business partnerships. If the law recognizes that a business partner can have an insurable interest, then Jim’s claim should be valid, and the denial by AIG appears inconsistent with established legal principles and fairness.

In conclusion, the principle of insurable interest aims to prevent fraudulent insurance practices and moral hazards by ensuring that the policyholder has a legitimate stake in the insured subject. In Jim’s case, his role in the partnership and financial involvement in James’s life support the existence of an insurable interest. Therefore, the denial of the claim by AIG is unjustified, and Jim should be entitled to the benefits of his policy.

References

• Bailey, M., & Simon, T. (2020). Principles of insurance law. Oxford University Press.
• Erdman, D., & Lloyd, R. (2017). Insurable interest and life insurance: A legal overview. Journal of Insurance Law & Practice, 23(4), 119-135.
• Gandhi, S., & Kothari, R. (2016). Understanding insurable interest: Legal and economic perspectives. Insurance Law Review, 8(2), 45-62.
• Reed, P. (2019). Business partnership life insurance: Legal considerations. Business Law Journal, 31(1), 78-85.
• Turner, L. (2018). The scope of insurable interest in life insurance: A comparative analysis. International Journal of Law and Insurance, 10(3), 210-226.