Another condition precedent to the grant ing of a policy is that the person effecting it should have an interest in the life to be insured, known as an insurable interest. This arises mainly from the provisions of the Act of 1774. Every adult person has, of course, an unlimited insurable interest in his or her own life. A wife has an unlimited insurable interest in the life of her husband, and it was decided in 1909 (Griffiths v. Fleming) that a husband has a similar interest in the life of his wife. Except in the cases named the interest must be pecuniary, e.g., the interest which a creditor has in the life of his debtor for the amount of the debt.
The proposal, the warranted statements to the doctor, and the policy, constitute the entire contract between insurer and insured.
Modern British policies are simple in form, the essential facts and figures being incorporated in a schedule. Of the many re straints formerly in vogue, the only one in common use is the restraint on suicide during the first 12 months of the policy.
Under whole life and endowment assurance contracts, where the annual premium is more than sufficient in the early years to cover the yearly risk, the office will return, after, on the average, two years' cash payments, a sum known as the surrender value. As current risk and expenses have to be allowed for, this is for policies of short duration considerably less than the total of the premiums paid. An alternative is to obtain a policy for a reduced amount, free from further premiums ; this is known as a paid-up policy. Offices are as a rule prepared to lend back to the insured a proportion of the surrender value, 90% to 95% ; the maximum amount which can be thus lent is the loan value. Under the laws of the State of New York, insurance corn panies are bound to state in their policies the surrender value for each of the first 20 years, and this is also done voluntarily by many British companies.
What are known as non-f orfeiture regulations provide for the continuance in full force, for a period, without payment of premiums, of policies carrying surrender values under which a certain number of years' premiums have been paid. The period may be for a year or it may be for a number of years until the surrender value is exhausted ; a provision of the former type is common in Great Britain, while the last mentioned plan is usual in America.
Proof of age, usually by the production of a birth certificate, is required, and this is best done at the outset, though it may be left until the policy becomes a claim.
In between those risks which an office can accept at its tabular rate of premium and those which are unac ceptable lie a large body of risks which can be accepted on special terms. In Great Britain these are usually dealt with : (I) by an addition to the premium, (2) by the deduction, for a period of years, of a level or diminishing sum from the amount insured— described as a debt. The assessment of these risks is a matter of great difficulty, but special researches into the question of over and under weight, cancer, phthisis, circulatory disease, etc., are by degrees making the treatment of the problem less empirical. In America the question is usually decided by a system of numerical rating, positive and negative marks being given for different qual ities and defects, while in certain Continental countries under average lives are sometimes dealt with by reinsurance companies or pools, created ad hoc.
Extra risk due to the surroundings or occupation of the insured, as distinct from his individual peculiarities, is of a different nature. Extra premiums are charged for certain tropical countries, remov able as a rule on return to a healthy climate, and in any case after a period of years; these are known as climate extras, but the portion of the world to which they apply is an ever contracting one. The additional risk for the army and navy can usually be covered by a moderate extra, 5s to los per Lioo per annum, payable in peace time : no further extra is then demanded on the outbreak of war. The extra to be charged for the Air Force is still in process of evolution. Other occupations regarded as extra hazardous are the liquor trade, and to a less extent, seafaring. Formerly it was usual to charge an extra to women under 4o.
A person who has no definite prospect of going abroad or engaging in a hazardous occupation is given a policy which is termed world-wide and indisputable, and no climatic or occupa tion extra can thereafter be charged under such a policy, no matter where the insured goes or what he does.