Insurable Interest: Girlfriend

[djs]

That point being noted, nevertheless that does not mean that it is governed by the principle of "insurable interest." It arises from carrier business practices and rules.

Insurable interest means that you cannot insure some thing or someone where you would experience no loss if the person or property were lost. The beneficiary is not the insured. Again, I am not saying that there are not other rules or principles that they rely upon in regard to the naming of beneficiaries.

I was in the same line of thinking, that the beneficiary did not require any insurable interest, simply the policy owner (who may or may not be a beneficiary). I looked it up. Turns out, some states do have laws about the beneficiary having an insurable interest as well, when the policy is issued. Nothing afterwards.

Obviously, some states were trying to shut down some insurance scams. Probably didn't work, but it was a try.

Learned something new here.

Dan

 

[Winter_123]

I was in the same line of thinking, that the beneficiary did not require any insurable interest, simply the policy owner (who may or may not be a beneficiary). I looked it up. Turns out, some states do have laws about the beneficiary having an insurable interest as well, when the policy is issued. Nothing afterwards.

Obviously, some states were trying to shut down some insurance scams. Probably didn't work, but it was a try.

Learned something new here.

Dan

There actually two different discussions going here. A state can have a law about there needing to be some relationship with the beneficiary but that does not mean that it falls under the principle of insurable interest. Insurable interest refers to something specific not everything related to policies.The beneficary does not have an insurable interest because the benficary is not being insured.

Conversely, if someone agrees to put an allowable beneficiary for you on their policy that does not create a insurable interest either. We can all agree that a spouse is an allowable beneficiary. Don't conclude that you can create an insurable interest in an unknown or unrelated person simply by putting your spouse on the policy as beneficiary. You can't. Insurable interest refers to the relationship between the policy owner and the insured. There may be rules about beneficiaries but that does not make it an insurable interest issue.

 

[insuranceexec]

Also, the Life Insurance contract is not affected by probate nor by a will. It does not pass through the estate.

Slight correction here arnguy. Life insurance is a part of your estate, and providing that your life insurance policy and your other assets exceed 3.5 million (2009), then you will have to pay a 45% estate tax. One way of by-passing this is to create an ILIT ( Irrevocable Life Insurance Trust).

Example:

You have a customer who is worth 3 million dollars. You sell the customer a 1 million dollar life policy; you have just increased their overall tax liability by $225,000.00. And in the right court could be held liable for creating this unnecessary tax.

The first 3.5 mill is exempt, and that is only for 2009; 2010 there will be NO estate tax threshold, so the liability next year will be ZERO. The liability with giving advice is that we do not know what will happen in 2011. Will they bring it back, or abolish it? The problem here is that the estate tax constitutes almost a 100 billion dollars a year in taxes; with a President who is determined to create all of these social programs, I would bet that this tax will be back on the books come 2011. I hope this helps....

 

[arnguy]

Thanks, Bill, for pointing that out. Mea culpa! I inadvertently gave the wrong impression. The last paragraph in my post was poorly worded. What I really meant to indicate is that a life insurance policy is not part of the probate estate in that it does not pass through the estate for probate purposes, i.e., it is not subject to probate under State law. Of course, the face amount of a life insurance policy is includable in the gross an estate for Federal Estate Tax purposes, although as you mentioned only those estates that exceed the $3.5 million threshhold would be affected. Probate is affected by the statutes of the particular State of domicile of the decedent; however, I believe all states do exclude life insurance.

I would say it is a safe bet that the Federal Estate Tax will be back during the Obama administration. Every tax dollar will be needed for funding his programs.

 

[Joe Moore]

There is no problem in naming about anyone or anything as beneficiary as long as it is a legit person or organization.

Winter,
I do not think this is exactly correct. I have seen beneficiary's named "girlfriend" or "boyfriend" and get kicked back by underwriters as "no insurable interest", change it to "fiancee" and it gets done.

I guess the strangest situation I have ever been involved in was an 83 year old female who had mailed in a lead card on final expense.

She was mad at a company and agent that had sold her a annuity with a 12% surrender charge. She wanted rid of that "piece of sh--" paper. She had put in about $50,000, surrender was worth about $44,000. I had a single-premium whole life that would give her about $62,000 of immediate benefit.

When it came down to the beneficiary, she had no relatives, no close friends, and wanted me to be the beneficiary. I told her I would love to have the money, but the state would probably frown on me being her beneficary. She finally settled on a small church (probably with about 30-40 members) that she had been to one time, but she liked the preacher and the church was made the beneficiary. Within 3 years, she passed on. This $62,000 was probably more money than the church had ever seen and I am sure came as a true surprise to the pastor and members. They probably thought this was a "gift from heaven".

Did they thank me? No, to this day they do not know I exist.

 

[Tomfromtheshade]

If her life would be greatly affected by your passing there is an insurable interest there. Maybe she would be so grief stricken that she couldn't work for 6 months. You have no idea what happens when people pass away and how it affects their loved ones. I would say that girlfriend qualifies as insurable interest.

 

[moonlightandmargaritas]

What I really meant to indicate is that a life insurance policy is not part of the probate estate in that it does not pass through the estate for probate purposes, i.e., it is not subject to probate under State law.

True, but with this exception: someone mistakenly names the estate as beneficiary.

Happens more than it should, and more than you might think.

 

[nka245]

What do you do when someone insists upon having their estate as a contigent beneficiary even when you explain that they are puttting their life insurance proceeds into automatic estate tax when they might not otherwise be taxed that way. Have any of you had this argument with someone? Also what if they say they are leaving it to a trust but have yet to set one up?

 

[moonlightandmargaritas]

What do you do when someone insists upon having their estate as a contigent beneficiary even when you explain that they are puttting their life insurance proceeds into automatic estate tax when they might not otherwise be taxed that way.

No, no, no.

If they are the owner, or have incidents of ownership in the policy, it's included in their taxable estate (if they have one) either way!

Not naming one's estate as a beneficiary precludes the proceeds going through the probate process. Entirely different.

If you want to be a true professional in life insurance, consider taking course HS323 - Individual Life Insurance, from The American College.

 

[nka245]

I'm actually awaiting some info from the AC now to take the courses for my CLU.

I sell mostly to people who don't have an estate, per se so I was under the impression that they would place the proceeds into an automatic taxation by placing them in their estate but I was actually just reading that for most of my clients; that wouldn't be the case however; the probate would and I can't imagine that anyone really wants to do that either...

Well, maybe they do.

I do appreciate your help. I asked to learn... At least I am not stagnating in my ignorance. I'm one of those people who didn't take classes for my license and just took the exam and passed so I assume I missed out on some things but then again, I wonder about that because I know I surely am not the most ignorant in the industry.

I worked in Real Estate for years before doing this and I know that industry inside and out. I understand the anger at people who come into your industry ignorant and unwilling to learn but I assure you, I am not one those people. I am ready and willing to learn.


What else do you suggest other than the CLU? I don't do financial planning. I concentrate mostly on life insurance and am considering annuities in the near future.