Feels good to take care of your family’s future
A recent Supreme Court ruling (March 2015) has sent shock waves through the many insurers that are offering single premium life insurance policies. Whether named as unit-linked single-premium life assurance policy, life assurance bonds, capital assurance or any other more or less fanciful denomination, any life insurance bond that is made up solely for the purpose of investment faces one very serious prospect: being declared void by Spanish Courts.
But this ruling has not come from nowhere: for some years already the administrative section of the Spanish Supreme Court is applying a not-too-well know article of the ConsolidatedÂ text of the PrivateÂ Insurance SupervisoryÂ Act, which states the following:
Article 4. Forbidden transactions and sanction of nullity.Â It is forbidden for insurance companies, and its conclusion will determine its utter nullity and voidness, the following transactions:
a)Â Â Â Â Â Those that lack actuarial technical base
But what does the word â€śactuarial baseâ€ť mean? Simply put, traditional actuarial base or science largely revolves around the analysis of mortality and the production of life tables, and the application of compound interest. Which is exactly what these â€ślife insuranceâ€ť policies, for want of a better word, actually lack.
The Spanish highest Court, in declaring the nullity of these contracts in at least 8 rulings, has argued the following:
â€śJudging by its features, this contract cannot be classed as an insurance policy but a capital investmentâ€ť.
â€śIn normal insurance death impacts the assurer in such way that, when a claim occurs, it is the company that suffers a lossâ€ť
â€śThe evidence points to the existence of a financial investment accord that pursues a tax advantageâ€ť
â€śThe blurring of the risk element is, in these contracts, complete and distorts the very nature of an insurance contractâ€ť
â€śIf there is no transfer of risk from insured to insurer there is no insurance contractâ€ť
â€śIt makes no palpable difference if the insured lives or diesâ€ť
â€śWhere age or medical condition â€“absence of medical questionnaire being symptomatic- are not parameters of any interest, the contract is doubtfully an insurance policyâ€ť
â€śIt is easily observable that the risk has been all but completely eliminated from these deals, in fact the health condition of the subscribed is indifferent, to the point of disregarding the medical exam.â€ť
â€śThe nature of financial product has been repeatedly concluded by Section 3 of the Supreme Courtâ€ť
Judging by these conclusions, thousands of contracts signed by expats face a serious risk of nullity: to name a few, Lex Life/Altraplanâ€™ life policies, Nordeaâ€™s Capital Managed Plan, Seb-Irish Lifeâ€™s Spanish Porfolio Bond, Prudentialâ€™s Spanish International Prudence Bond, Old Mutualâ€™s Executive Investment Bond, Danske Life/Danica Lifeâ€¦and there is no time limitation to being a claim.