Because of this, the partnership was able to collect the death proceeds as tax-exempt proceeds on a life insurance policy, rather than as the taxable proceeds of a wagering contract
upon a life where the beneficiary holds no insurable interest.
"That right is limited to bona fide sales of that policy taken out in good faith," as opposed to cover for a wagering contract
, the court says.
If there is no insurable interest, the policy is an illegal wagering contract
It shall further include wager, wagering contract
, totalisator and pool transaction in relation to any game or sport but shall not include a lottery or betting on a horse race when such betting takes place-
If the applicant has no insurable interest at the time a policy is taken out, the proceeds will be taxed as gain from a wagering contract
. If a policy is found to be void for lack of an insurable interest, the insurance company is generally required to refund premiums paid plus interest.
By passing these statutes and providing an implicit definition of what constitutes insurance, the English Parliament made an important distinction between an insurance contract and a wagering contract
. (28) While some modern commentators argue that life insurance is not distinct from a wagering contract
, (29) these English statutes introduced an idea that helped form the insurance industry by formalizing, in a general way, the requirements of an insurance contract.
The conservatives assert that insurance of any kind is haram because: (1) it is an implicit wagering contract
; (2) it is a contract based on uncertainties and prone to exploitation; (3) it is an attempt to supersede the will of God; (4) most insurance business is based upon riba, which is haram; and (5) the values exchanged between the insurance company and the insured are not equal.
The Court held that the wagering contract
The Tax Court held that the contract was in fact a wagering contract
, thereby making the exclusionary clause provided in Section 221b)(1} of the 1939 Code inapplicable and requiring the full amount of the proceeds to be included in gross income.
not always easy to distinguish illegal wagering contracts
from other 'aleatory' contracts that have a legitimate commercial or other purpose and are not considered contrary to public policy.
Such consent is persuasive, "further vindicat[ing] the public policy designed to prevent wagering contracts
on which the insurable interest rule is grounded" (Dou, Chem.