Do your Life Insurance Beneficiaries Have an Insurable Interest in you?
When completing your life insurance application, you documented your beneficiaries who will receive the benefits from your policy upon your death. A valid beneficiary must have an insurable interest in you, meaning your death could cause that person a financial hardship.
Back in the 1940’s or 50’s the most common life insurance beneficiaries were your spouse and children if you were married, or your parents if you were single. Today, lifestyles have changed. Perhaps you are an engaged couple who’ve decided to live together before your big day, in a same sex relationship and your state has not adopted same sex marriage, or life partners who have no intention to marry but are in a committed relationship. In these instances, you may have written in partner or fiancé as your beneficiary designation. On paper, the insurance company may not see the insurable interest. You may share living expenses, own property together, or have children; and in the event of your death your beneficiaries could suffer a financial loss. In those instances, there is an insurable interest between you and your partner or fiancé.
I once had a completed life insurance application where the insured listed her aunt, uncle, and 2 cousins as her beneficiaries. I asked what the insurable interest they had with her. The insured indicated she was a single mom and did not have a spouse, parents, or siblings. She wanted her aunt and uncle to raise her child in the event of her death and policy proceeds would pay for her child’s expenses. She went on to say she wanted to leave money to her cousins because she grew up with them and wanted to leave them a little something. In this situation, the aunt and uncle have an insurable interest to the insured. They would have the financial burden of raising her daughter in the event of her death. The cousins do not have an insurable interest as they would not suffer a financial loss due to the insured’s death.
About the author: Teri Costen has been in the life insurance business for over 20 years. She is a mother of three who enjoys working out, taking aerobic kickboxing classes, and making stained glass. Teri believes that finding the right life insurance policy helps protect your family and loved ones. You can contact Teri at 1-800-651-1953 or TCosten@Pivot.com.