Bonds, Lives Assured & Insurable Interest

HR246

Hi everyone,

If someone opens an onshore/offshore bond and puts their sibling as an additional life assured, I'm assuming that this doesn't count as an insurable interest unless there's something else going on e.g. the sibling owes the bond holder money, or the sibling is financially dependent on the bond holder.

If it's true that a sibling doesn't have an insurable interest and a client puts a sibling as a life assured, what problems could this lead to? Could it just lead to an issue with the life assurance element of the bond (which probably wouldn't be a big deal as typically it's only 1% and generally bonds aren't taken out for protection purposes anyway), or could it lead to bigger problems?

Thanks in advance!

les_cameron

The law of insurable interest is 250 yrs old this year and doesn't deal with joint life applications. So it is a grey area - would half the contract be OK if one of the life's assured had insurable interest?

There have been several attempts to modernise over the years but none have got anywhere.

There are some who claim the contract is null and void but my understanding is that legally it is highly unlikely that any court would set aside a contract on this basis.

As you say protection is not an issue with insurance bonds.

In practice I don't think you'll encounter any issues whatsoever.

This has been happening for years and is widespread industry practice.