Key Considerations for Mandatory Enforcement of Insurance Policies

With the Supreme Court’s Civil Ruling No. 897 of 2019 (Tai-Kang-Da), it has been affirmed that an enforcement court may, when necessary, issue an execution order to terminate a life insurance contract where the debtor is the policyholder and instruct the insurance company to pay the surrender value. Consequently, the mandatory execution of life insurance policies has been increasing in practice.

Although the ruling recognizes that the cash value of a life insurance policy is a property right enjoyed by the policyholder under the contract, pursuant to Articles 116, 119(1), and 120(1) of the Insurance Act, and that it is not an exclusively personal right (as it can be inherited, transferred, or disposed of), the reasoning in the ruling only generally states that execution courts must weigh the interests of creditors, debtors, and other relevant parties in a "fair and reasonable" manner per Articles 1(2) and 122 of the Compulsory Execution Act.

This lack of objective criteria has led to inconsistencies among lower courts and frequent disputes over disproportionate execution of policy surrenders for debt repayment.

In response, on June 17, 2024, the Judicial Yuan issued the Principles for Compulsory Execution of Monetary Claims in Life Insurance Contracts, outlining the following restrictions:

1. Small whole-life insurance policies and life insurance contracts without a surrender value after termination may not be subject to compulsory execution;

   
   

2. If the claim amount does not exceed the amount necessary to support the debtor and their dependents for three months, and the debtor has no other assets available for execution; or

   
   

3. If the debtor has other assets, but their post-execution value remains insufficient to repay the debt, the life insurance policy may not be enforced.

   
   

Additionally, if a court terminates a debtor’s life insurance policy (main contract), any attached riders may not be terminated if they meet any of the following conditions:

1. The rider is a long-term rider without a surrender value.

   
   

2. The rider is a long-term rider with a surrender value, but the surrender value of the main contract is sufficient to cover the execution costs and creditor claims.

   
   

3. The attached contract is a one-year term rider.

   
   

4. The rider pertains to health or accident insurance.

Furthermore, the Financial Supervisory Commission (FSC) announced a proposed amendment to the Insurance Act on June 4, 2024 (pending approval), specifying that the following insurance contracts cannot be seized or subject to compulsory execution:

• Property insurance contracts.

• Health insurance contracts.

• Accident insurance contracts with a term of less than one year.

• One-year term life insurance contracts.

• Small whole-life insurance policies.

• Life insurance contracts (other than small whole-life policies) where the total insured amount per individual does not exceed NT$1 million.

• Annuity contracts that have entered the annuity payment period.

• Single-policy surrender values not exceeding NT$100,000.

• Insurance benefits arising after the insured event occurs, or within a specified threshold. (Proposed Article 174-2)

  
  

Introduction of Intervention Rights

The proposed amendment also introduces an intervention rights system. It stipulates that when a policy’s reserve value is seized, the designated beneficiary, the insured (if no designated beneficiary is named), or certain relatives of the policyholder and insured, may, with written consent from both the policyholder and the insured, intervene in the policy by paying the creditor within the surrender value limit, as specified by the enforcement court, the Administrative Enforcement Agency, or the designated creditor in the execution order. Upon notification from the court or enforcement agency, the intervening party may assume the policyholder’s rights. (Proposed Article 174-3)

If you have any questions regarding insurance contracts or issues related to compulsory execution, feel free to schedule a consultation with a lawyer.

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