How to establish insurable interest in life insurance policy for non-blood and non-debt relationships?

Question

Can insurable interest be established by stating that there is an emotional loss or that there is an emotional relationship between the beneficiary and life insured?

Is insurable interest required for beneficiary change after a policy is issued or is it only required at policy inception?

Is insurable interest required for absolute assignment?

Answer 1

Well, you must lose something of value if the insured dies. This something of value can be financial loss, debt repayment, love, and so on.

Insurable interest only applies if you are the one paying for the policy. The insured must also give consent to have the life insurance. The one who pays the policy is the policy owner. Policy owner has complete control on the policy. They have right to change the beneficiary, change ownership, and have decisions on what to do with the cash value, loans, or any other financial benefits from the policy.

The assignment clause only kicks in if the policy owner wishes to transfer the ownership to someone else. Insurable interest must exist between the new owner and the one being insured. There are two assignment options: Absolute assignment and collateral assignment. Absolute assignment is where you tranfer the ownership to another person. This change is permanent.

Under collateral assignment, you temporarily assign someone as an owner with limited rights. Collateral assignment is most common when the creditor requires insurance as part of the security for a loan.

As for naming the beneficiary, anyone can be named a beneficiary. There is no law that states that the beneficiary need to have insurable interest on the insured. The policy owner doesn't even have to notify the beneficiary that they are named in the life policy. Most companies will have restrictions on who you can name a beneficiary (such as naming your pet as a beneficiary).

Answer 2

The company I work for states that upon writing the life policy, you must name an insurable interest as the beneficiary. After the policy is issued, I have my clients fill out a form changing the beneficiary. At that time they do not have to name a beneficiary that has insurable interest. That is how charities, friends, etc. are named. It is done all the time.
Some wrong info you received: If you don't have someone named as beneficiary the policy is not null and void. The insurance company will cut the life insurance death value to your estate. Unfortunately this would put it into probate.
However, if you name someone as beneficiary Life Insurance does not go through probate!
Check with your agent about getting the form to change your beneficiary and call the company to see if you can change it to someone or a charity that has no insurable interest. Sure they'll tell you, that you can name anyone you want
Hope this helps

Answer 3

To answer your first question, no, emotional loss is not considered insurable interest.
To your second question, as a general rule, insurable interest is only necessary at time of application. Once the policy it issued, the insured (owner) can name anyone they wish as beneficiary. We used to name the estate to get the policy issued and then immediately change it to the person the insured wanted to get the money.
For absolute assignment, there would need to be some arrangement made where the insurance would be assignable.

Answer 4

I, personally do not believe that there is an "insurable interest" requirement in life insurance. I have ONLY ever seen it in the property/casulty lines of business.

I think you can name whomever you want as beneficiary of the policy, ESPECIALLY if you are the policy owner. That could be, your best friend who is not blood related and whom you owe no money to, the cat rescue group that you wildly admire, your church, etc.

Just be extremely specific (name, date of birth, ss# or tax id number) in the beneficiary clause, so "Joe Smith's" identity can't be mistaken.


** for the person that asked. I've never had a person who applied for a life insurance policy for themselves (that is, owner AND insured) have the beneficiary questioned. The relationship did NOT have to be explained - "friend" worked just fine every time. I've never had a policy owner/insured have to "defend" a beneficiary clause in order to get the policy issued. That's why I say "I don't believe in the insurable interest clause".

That's not to say that I, Jane Doe, can take out a life insurance policy on Brad Pitt with me as the beneficiary. Clearly, not only would I need Brad's permission, but the insurance company would likely decline to issue, as there is no "insurable interest" - ie, I have nothing to lose from his death, the policy would be pure speculation. Rather than getting into a battle about whether or not I forged his permission and hired a lookalike to do the bloodwork, they'll just not bother with it at all.

Answer 5

You have to have an insurable interest when you take a life assurance policy out. A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. Without an insurable interest, the policy is null and void. So, there would be an insurable interest between, partners, husbands and wives etc. I would not have an insurable interest on say my friend's life as I would not be financially disadvantaged financially by her death. Before insurable interest was introduced, anyone could take out life assurance on anyone and there were lots of strange murders as a result!!. You also have an insurable interest in a business parter as again, you would be financially disadvantaged on their death. You can nominate a beneficiary for the policy proceeds i.e a child by placing the policy under trust either absolute (no changes possible) or flexible (changes can be made). By putting the policy under trust, the policy proceeds pass directly to the beneficiary and not through probate in the event of the life assured death. You can also effect life policies on a life of another basis but again, you must have insurable interest between the policy owner and life assured.

Answer 6

For a non-blood, non-debt relationship there typically will be no insurable interest. However, insurable interest is only required when initially applying for the policy. Once it's issued, you can change it to whomever you wish. Insurable interest is also not required for absolute assignment of benefits, provided the assignment is given after the policy is issued.

Answer 7

An emotional loss is not considered an insurable interest. But if you share expenses with the individual, or you are charged with final expenses, then that is an insurable interest.

So, someone that you live with & share household expenses with such as an unmarried couple, that could qualify as an insurable interest.

Basically, you need to show the insurance company how the survivor will loose financially without that other person.

Answer 8

I have a charity setup as beneficiary on one of my policies. There is no insurable interest there.

Answer 9

One dodge might be to lend some money to someone who you want to set up with an insurable interest -- or borrow some. But this is really a question for an insurance broker.

Answer 10

Insurable interest only applies if you are the one paying for the policy, therefore the one paying also is the policy owner. This only the owner has complete control of the policy, only they have right to change the beneficiary, change ownership, and have decisions on what to do with the cash value, loans etc.
Anyone can be named a beneficiary. There is no law that states that the beneficiary need to be related to you.
But there are some restrictions who you can name as beneficiary, e.g. You cannot name your pet as beneficiary!
I found this site also very helpful:
http://beneficiary-lifeinsurance.life-insurance-helper.org