Legal Intricacies of Life Insurance - An Overview for Policyholders and Practitioners

Josef Bergt
2023

Introduction

Life insurance serves as a financial bulwark against the biometric risks (e.g., death, occupational disability, invalidity) that an insured individual may encounter. The contractual framework of life insurance stipulates a predetermined insurance benefit to be disbursed to the policyholder or a designated beneficiary under specific conditions, such as death within a certain timeframe or survival to a predetermined age. The intricacies of life insurance policies, however, extend far beyond these basic premises, encompassing various forms such as risk life insurance, mixed life insurance, and private pension insurance, each with its own set of legal and financial implications. This article aims to elucidate the multifaceted nature of life insurance contracts, delineate the obligations of policyholders, and explore the regulatory landscape governing life insurance providers.

Types of Life Insurance

Risk Life Insurance

Risk life insurance is primarily designed to provide financial security for the family or other economically dependent survivors in the event of the policyholder's untimely death. It serves as a pure death benefit insurance, disbursing a predetermined sum to the designated beneficiaries, such as family members, upon the death of the insured individual. Importantly, this type of insurance can also be employed as collateral for loans, such as mortgage loans.

Mixed Life Insurance

Mixed life insurance, also known as capital life insurance, combines the features of risk life insurance with a long-term savings component. In the event of the insured individual's death, a predetermined sum is paid out to the designated beneficiaries. Conversely, if the insured individual survives the contract term, the accumulated capital, often augmented by a share of the insurer's profits, is disbursed.

Private Pension Insurance

Private pension insurance guarantees a lifelong pension payment or a lump-sum payment upon reaching retirement age. In the event of the insured individual's death before the agreed retirement age, provisions can be made to ensure that at least the paid premiums or a predetermined death benefit are disbursed to the designated survivors.

Special Cases: Burial Insurance

Burial insurance, a form of small life insurance, is specifically designed to cover funeral expenses and is generally operated by small insurance associations.

Obligations of Policyholders

Policyholders are obligated to pay premiums punctually and to provide accurate health information during the application process. Failure to disclose pre-existing conditions or other risk factors can result in the denial of the death benefit by the insurer. Additional obligations may be outlined in the General Terms and Conditions of the respective insurance company.

Regulatory Oversight

In the EU and EEA the competent national supervisory authority oversees domestic insurance companies and ensures that the legal and financial interests of the insured population are adequately safeguarded. However, the national supervisory authorities do not enforce individual rights in specific cases; that responsibility falls to the courts.

Conclusion

Life insurance contracts are complex legal instruments with multifarious forms and stipulations. Understanding the nuances of these contracts, the obligations they impose, and the regulatory environment in which they operate is crucial for both policyholders and legal practitioners. As such, a comprehensive understanding of these aspects is indispensable for navigating the intricate landscape of life insurance.

Source: BaFin on Life insurance

Executive Summary:

• Life insurance serves as a financial safeguard against various biometric risks.
• Different types of life insurance cater to different needs, including risk life insurance, mixed life insurance, and private pension insurance.
• Policyholders have specific obligations, including the punctual payment of premiums and the accurate disclosure of health information.
• Regulatory oversight is provided by competent national supervisory authorities, which ensure the legal and financial interests of the insured population but does not enforce individual rights.