Life Assurance Act 1774
Encyclopedia
The Life Assurance Act 1774 (14 Geo. 3 c.48, also known as the Gambling Act 1774) was an Act of Parliament
of the Parliament of Great Britain
, which received the Royal Assent on 20 April 1774. The Act prevented the abuse of the life insurance
system to evade gambling
laws. It was extended to Ireland
by the Life Insurance (Ireland) Act 1866, and is still in force. Prior to the Act, it was legally possible for any person to take out life insurance on any other person, regardless of whether or not the beneficiary of the policy had any legitimate interest in the person whose life was insured. As such, the system of life insurance provided a legal loophole for a form of gambling: an insurance policy could be taken out on an unrelated third party, stipulating whether or not they would die before a set date, and relying on chance to determine if the "insurer" or "policy-holder" would profit by this event.
Sections 2 and 3 were amended by the Statute Law Revision Act 1888, and the requirement in section 2 to name the beneficiaries of a life insurance policy was relaxed by section 50 of the Insurance Companies Amendment Act 1972, to allow insurance by reference to a defined class or description of person. The defendant in the important contract law case of Carlill v. Carbolic Smoke Ball Company
(1898) had attempted unsuccessfully to rely on this section to avoid paying £100 to the plaintiff.
" was, and it has since been held as the definite expectation of suffering a financial loss directly due to someone's death. It is generally accepted that a person has an insurable interest in the life of someone financially supporting them - for example, in the life of their parent whilst they are still a juvenile - but that this interest can cease if the situation changes. In a 1904 case, it was held that a man insuring the life of his elderly mother in order to pay funeral expenses, where he did not otherwise have a financial interest, was void. However, note that as long as an insurable interest existed at the time the policy was created, it remains valid even if the interest later ceases.
A person is considered to have an unlimited interest in their own life or in that of their spouse, a case the law considers broadly equivalent; even if not financially dependent on the other, it is legitimate to insure against their death. This does not reliably extend to cohabiting
couples, however: whilst many insurers will accept such policies, as they have not been tested in court they could potentially be invalidated. In recent years, there have been moves to pass clear statutory provisions in this regard, which have not yet borne fruit. Similar treatment was recently extended to civil partners under section 253 of the Civil Partnership Act 2004
.
The Act remains of importance for policies of life insurance, including investments that are packaged under the umbrella of life assurance, such as endowment
policies used to pay off mortgages
.
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
of the Parliament of Great Britain
Parliament of Great Britain
The Parliament of Great Britain was formed in 1707 following the ratification of the Acts of Union by both the Parliament of England and Parliament of Scotland...
, which received the Royal Assent on 20 April 1774. The Act prevented the abuse of the life insurance
Life insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...
system to evade gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
laws. It was extended to Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
by the Life Insurance (Ireland) Act 1866, and is still in force. Prior to the Act, it was legally possible for any person to take out life insurance on any other person, regardless of whether or not the beneficiary of the policy had any legitimate interest in the person whose life was insured. As such, the system of life insurance provided a legal loophole for a form of gambling: an insurance policy could be taken out on an unrelated third party, stipulating whether or not they would die before a set date, and relying on chance to determine if the "insurer" or "policy-holder" would profit by this event.
Provisions
The Act was relatively short, with only four sections:- Section 1 sought to deal with these abuses by stipulating that henceforth no assurance was to be made on the life of any person or persons, or on any other event, where the person for whose use the policy was made had "no interest" in the matter, or if it were clearly done for the intent of "gaming or wagering", and that any assurance made contrary to this requirement was deemed null and void.
- To aid in preventing this, section 2 required that any such policy include the names of the persons who stood to benefit by it.
- Section 3 stipulated that, in all cases where the insured party had a legitimate interestInsurable interestInsurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object...
in the life or event, they did not recover more than the value of their interest from the policy, guarding against the related abuse of deliberate overinsuring. - For the avoidance of doubt, section 4 stated that the Act stated that it did not extend to legitimate insurances of ships, goods or merchandise. Gaming or wagering in relation to British ships and merchandise was already prohibited by the Marine Insurance Act 1745.
Sections 2 and 3 were amended by the Statute Law Revision Act 1888, and the requirement in section 2 to name the beneficiaries of a life insurance policy was relaxed by section 50 of the Insurance Companies Amendment Act 1972, to allow insurance by reference to a defined class or description of person. The defendant in the important contract law case of Carlill v. Carbolic Smoke Ball Company
Carlill v. Carbolic Smoke Ball Company
Carlill v Carbolic Smoke Ball Company [1893] is an English contract law decision by the Court of Appeal, which held an advertisement containing certain terms to get a reward constituted a binding unilateral offer that could be accepted by anyone who performed its terms...
(1898) had attempted unsuccessfully to rely on this section to avoid paying £100 to the plaintiff.
Effects
The Act did not define what an "insurable interestInsurable interest
Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object...
" was, and it has since been held as the definite expectation of suffering a financial loss directly due to someone's death. It is generally accepted that a person has an insurable interest in the life of someone financially supporting them - for example, in the life of their parent whilst they are still a juvenile - but that this interest can cease if the situation changes. In a 1904 case, it was held that a man insuring the life of his elderly mother in order to pay funeral expenses, where he did not otherwise have a financial interest, was void. However, note that as long as an insurable interest existed at the time the policy was created, it remains valid even if the interest later ceases.
A person is considered to have an unlimited interest in their own life or in that of their spouse, a case the law considers broadly equivalent; even if not financially dependent on the other, it is legitimate to insure against their death. This does not reliably extend to cohabiting
Cohabitation
Cohabitation usually refers to an arrangement whereby two people decide to live together on a long-term or permanent basis in an emotionally and/or sexually intimate relationship. The term is most frequently applied to couples who are not married...
couples, however: whilst many insurers will accept such policies, as they have not been tested in court they could potentially be invalidated. In recent years, there have been moves to pass clear statutory provisions in this regard, which have not yet borne fruit. Similar treatment was recently extended to civil partners under section 253 of the Civil Partnership Act 2004
Civil Partnership Act 2004
The Civil Partnership Act 2004 is an Act of the Parliament of the United Kingdom. The Bill for this Act was introduced by the Labour government and supported by the Conservative and Liberal Democrat opposition. The Act grants civil partnerships in the United Kingdom with rights and...
.
The Act remains of importance for policies of life insurance, including investments that are packaged under the umbrella of life assurance, such as endowment
Endowment mortgage
An endowment mortgage is a mortgage loan arranged on an interest-only basis where the capital is intended to be repaid by one or more endowment policies. The phrase endowment mortgage is used mainly in the United Kingdom by lenders and consumers to refer to this arrangement and is not a legal...
policies used to pay off mortgages
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
.