Insurance contract is a sort of acceptance contract, not a sort of substantial contract. Therefore, when two parties of an insurance contract are in agreement with the subject matter insured and the premium, the contract is established. However, the payment of premium is not prerequisite. Premium is the relative value of risks taken by an insurer. It will influence the undertaking ability of an insurer and benefits of the whole group involved in risks. Thus, the policy owner should obey the contract to accomplish the obligation of paying premium after the establishment of a contract. Life insurance contract is different from debt contract of civil law, in other words, an insurer shall not demand payment of premium by the way of litigation according to Insurance Act, Article 117-1. The main purpose of this statue is to avoid forcing the policy owner to save. As mentioned above, premium is the relative value of risks taken by an insurer, and the premium payment must be the precondition for the insurer to undertake risks. It will be difficult to maintain the efficacy of a contract if the policy owner does not pay the premium. Hence, it is regulated in Insurance Act to ensure the definite efficacy of a contract.
Insurance Act, Article 116, “Unless otherwise stipulated in the contract, when a life insurance premium is due and unpaid, and remains unpaid more than thirty days from receipt of notice of payment due, the validity of the insurance contract shall be suspended.
Notice of payment due shall be served to the most recent domicile or residence of the proposer or of the person under obligation to pay the premium. After notice of payment due has been served, the premium shall be paid at the business office of the insurer.
A suspended insurance contract referred to in paragraph 1 shall be reinstated at zero hours on the morning of the day after the premium and other expenses have been paid. The insurer has the right to terminate the contract upon expiration of the time limit set forth in paragraph 1.”
Protecting the policy owner or the insured and balancing the benefit of the insurer are the foundation of this statute. The purpose of this statute is satisfactory. Nevertheless, the limitation from “Enforcement Rules for the Insurance Act Article 12-1”and current practical “Model Provisions for Life Insurance Policies Article 6” are unreasonable, especially the constraint to insurer’s contract cancellation right in suspension period and the application of reinstatement. These three statutes regulate the same actuality, but because of the misconception of legislation intention and the inadequacy of skill on establishing statutes, it has led to endless argument between insurance scholars and insurance companies. Thus, there is more and more controversy on reinstatement of policy.
The major research emphasis in this thesis are as follows:
1. Besides analyzing relative legal statutes and current practices in Taiwan, I also inquire into foreign relative legal statutes, judgments and practices.
2. Discuss the property of policy applying reinstatement and the necessity of fulfilling the obligation to inform on truth.
3. Examine the current practice of reinstatement application in life insurance companies. That is to say, taking the proceeding of risk selection in order to avoid the occurrence of anti-selection and moral hazard. Is it adequate for insurers to set up the particular regulation to restrict the policy owner for preventing the occurrence of anti-selection and moral hazard?
4. When the insurer agrees the reinstatement application and the policy owner pays off the owed premium reducing risk premium of suspension period and will the efficacy of policy be recovered? May the insurer exercise the right of cancellation after the policy efficacy is recovered and will it increase occurrence of anti-selection and moral hazard for insurance company?
5. Take the practical claim records of insurance company to examine the claim experience and discuss the relative factors which influence policy applying reinstatement. In addition, inspect whether the reinstatement policy lead to the increase of anti-selection and moral hazard. Furthermore, state my personal opinion as the conclusion and recommendation.