What is a “moral hazard”?  It is a term used in insurance circles that describes the subjective choices a person makes or could make because they have insurance.  Wikipedia describes it as:

In economic theory, moral hazard is a situation in which a party insulated from risk behaves differently from how it would behave if it were fully exposed to the risk.

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company.

How does this effect travel insurance? It is a concept that guides insurance executives when designing travel insurance policies.  A good example of this is the clause found in many trip cancellation coverages that:

All cancellations must be reported directly to the Travel Supplier within 72 hours of the event causing the need to cancel, unless the event prevents it, and then as soon as is reasonably possible.

This is based on the insurance company’s concern that a traveler might act differently with insurance than they would without it and therefore incur higher cancellation fees and therefore cause increased claims for the insurance company.

Another classic case of “moral hazard” involves flight insurance.  It has been the motivating factor of at least one Hollywood disaster movie where the drama was created because a character bought flight insurance with the intent to blow up the flight over water so that his wife could receive the death benefit.

Another example of “Moral hazard” is the reason why travel insurance companies will not insure the monetary value of award tickets.  Company’s are concerned that it would encourage travelers to “cash” out their awards  which would result in increased claims.

Timing is one of the most important aspects of travel insurance, and depending on when you purchase your plan could determine whether or not a claim will be paid or denied. To help you get a better understanding on how time affects coverage we developed the travel insurance timeline.
This timeline hopefully will help clarify how the plan works and what coverages are in force at what time.

You probably have been reading about the guy being held in Aruba on the suspicion of murder because of  the presumed death of his girlfriend several weeks ago.  One of the things that came to light early in the investigation is that he was the sole beneficiary on a $1,500,000 Accidental Death and Dismemberment policy.  His suspicious behavior included at least 4 calls to the insurance company concerning the policy and a possible claim. 

My friends and colleagues have asked me several questions.  Here are their questions and my answers based on my 42 years of experience:

 1.  Is this a covered claim?  Depends on the exact wording of the accidental death policy however, most policies require that there is an accident that results in bodily injury of the insured person and that death is a direct result.  However, in this case there is no body and therefore no way to determine if there was an “accident”.  This presents a problem for the beneficiary because it is their responsibility to submit evidence that shows the death was caused by a covered accident.  Without the body and proof that an accident occurred than it is up to a court of competent jurisdiction to determine that a death occurred and under what circumstances.  That could take a number of years before she could be presumed dead by a court.

2.  Is murder an accident?  Yes, it is an accident for the insured person because presumably it was an unexpected, sudden, and abrupt event which is usually the definition of an accident.

 3.  If it’s found that the boyfriend murdered her can he still collect the proceeds from the policy?  No.  There is a common law principal that a named beneficiary can not benefit from a policy when they feloniously or intentionally kill the insured person.  Many states have codified this principle by specific statue usually referred to as “slayer laws”.  Here is a typical law:

A named beneficiary of a bond, life insurance policy, or other contractual arrangement who feloniously and intentionally kills the principal obligee or the person upon whose life the policy is issued is not entitled to any benefit under the bond, policy or other contractual arrangement, and it becomes payable as though the killer had predeceased the decedent.

Even if the beneficiary isn’t criminally charged with the insured’s death they still might be excluded from receiving payment since the insurance questions involve insurance laws rather than criminal laws and would be tried in a civil rather than a criminal court.

4.  Can a “friend” be a beneficiary on a policy with a death benefit?  Does a boyfriend have an insurable interest in his girlfriend’s life?  This issue isn’t as clear.  It’s presumed that a spouse has an insurable interest in the life of the other spouse however, with a non-spousal relationship it is less clear if there is an insurable interest.  The usual standard is if the beneficiary has a financial loss if the insured person dies.  In most cases “insurable interest” is only required at the time of policy purchase however, according to one source requiring a insurable interest at the time of sale is “a long dormant” practice and in the Aruba case the policy has already been issued.  After the policy purchase it becomes less clear if an “insurable interest” needs to exist.  That point can be argued in court by the estate of the insured person or by their heirs.

5.  If the beneficiary can not collect because of a “slayer law” than who will collect?  Most “slayer laws” treat the slayer as if they had predeceased the insured person and the next person in the order of secession or the contingent beneficiary would receive payment.  In many cases insurance companies will ask the courts to make the determination.

Bottom line is that the boyfriend will probably not be able to collect any benefit from his girlfriend’s accidental death policy because of the “slayer laws” and the concept of “insurable interest”.

Travelex has just recently changed underwriters for 3 of its main plans – the Basic, Select and Max to Stonebridge Casualty (the underwriter was Nationwide prior). The plans have not changed much at all, they are still primary coverage when it comes to medical coverage and the pre-existing condition exclusion is still a very short 60 days while the time sensitive waiver of the pre-existing condition exclusion is among the longest at 21 days on the Select and 30 days on the Max.

But like most recent plan updates the rates went up a bit and the Max plan no longer includes Cancel for Any Reason coverage built-in. It is now offered as an option.

The Select Advantage plan is gone but the Select now offers a 1 child free per 1 adult.

We could only buck the trend so long. We have been tweeting for a short while now but its official, we now have brought our collective travel insurance knowledge to the Facebook masses. The only thing for you to do now is to like us and allow us to keep you up to date with the latest in travel insurance as well as the occasional slightly off-topic observations.