ON THE NATURE OF INSURANCE. 24$ 



The advantage of the moral security which a contract 

 of insurance gives is obvious in the transaction which 

 led to this decision ; namely, the insurance of the life of 

 a creditor by a debtor at his own expense. Commercially 

 speaking, such a transaction is literally this: C owes 

 500/. to B, who, doubting his chance of payment if the 

 debtor should die, buys 500/. from a third person, and 

 makes believe that it is the 500/. which C owes him. 

 Morally speaking, it is the determination of B to retrench 

 his own expenditure, as soon as he finds that a part of 

 his property consists in bad debts. This the office 

 enables him to do in a manner which will make the 

 retrenchment proportional to the necessity for it. In 

 the mean time, it is much to be wished that the law of 

 life insurance were settled upon a fixed basis, which 

 should proceed upon such a definition of the contract as 

 has been here explained, and not on the notions which 

 have been drawn from a supposed analogy between it 

 and the insurance of a ship or a house. The effect of 

 the present state of the law is, that the offices have no 

 law except that of honour, which, though it more than 

 suffices for the protection of the insured, yet may at 

 any time involve the offices in the necessity of paying 

 really questionable policies, without having the means of 

 submitting to open examination the point on which 

 they wish to resist. Policies of insurance are sold daily 

 to persons who have no interest in the lives of the 

 insured parties, on the faith of the good conduct of the 

 offices. If an office were to resist the payment of a 

 policy so transferred, say on the ground of fraudulent 

 representation, the parties so resisted might give out 

 that the opposition of the office arose out of an intention 

 to cover themselves by the present letter of the law. 

 Neither could such a case be carried into court without 

 proof that the plaintiffs possessed that insurable interest 

 in the life of the deceased which the law requires. 



The nature of the contract, both in law and usage, 

 having been laid down, we must next ask what are the 

 means which the offices employ to reduce the risk so as 



