15

Life Reinsurance

by Thomas G. Kabele *

     Life insurance and reinsurance are both similar to and different from P/C insurance and reinsurance. While the one protects lives from financial loss occasioned by premature death (during economically productive years), the other protects persons and organizations from financial loss occasioned by destruction of their property or by their negligence in causing financial losses to others. Both life and P/C require the purchaser to have insurable interest in the object of insurance (i.e., the potential to lose financially from a certain event), else there would be no loss. But P/C insurance requires insurable interest at the time of loss, while life insurance requires insurable interest only at the time a life policy is purchased, not at the death of the insured life.

     There are opinions that, because of the latter requirement, life insurance is a fixed-sum contract rather than indemnity. The fixed sum represented by the face amount of the policy, however, would appear to be the agreed amount of financial loss to be indemnified, based upon the economic value of the human life insured. If so, the fixed sum can be compared to P/C valued policies used in certain forms of property insurance to establish the value of the insured property prior to its destruction. Examples can be found in ocean marine cargo insurance, where the lost cargo would be beyond recovery for valuation purposes; or totally destroyed dwellings, when mandated by law in some states; or title insurance, where the loss from a defective real estate title is the entire property value; or the casualty line of hole-in-one insurance, used sometimes by successful golfers in meeting their social obligations to supply a round of libations in celebration of the achievement.

     The insurable interest in life insurance may be illustrated by any one of four (or more) examples.


* Ph.D., FSA, Senior Vice President - Reinsurance and Taxes, THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, 201 Park Avenue South, New York, NY 10003. An autobiography follows the chapter. The author wishes to thank Robert M. Mangino, CLU, of SWISS RE AMERICA for his suggestions and help with the chapter.

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