When a client is deciding on who to name as beneficiaries of their life insurance policy, the topic of insurable interest often comes up,  Insurable Interest can be defined as:

The interest arising when one person has a reasonable expectation of benefiting from the continuance of another person’s life or of suffering a loss at his or her death.  In life insurance, a person generally is considered to have an unlimited insurable interest in himself or herself.  However, a person must have an insurable interest in another person at the time of application in order to insure the other’s life.

From the definition above, it’s clear that a spouse and children would have an insurable interest in the life insurance policyholder’s life.  They would most probably suffer a financial loss if their spouse or parent passed away.  Sometimes a client will want to list a sibling or friend as a beneficiary and, in these situations, the insurance company will typically ask what insurable interest the proposed beneficiary has in the policyholder.  Usually, if there is no clear interest, the insurance company will question it and sometimes disallow the beneficiary designation.

I just read an interesting news story concerning beneficiaries of the life insurance policies of Susan Powell, the missing Washington woman whose husband, Josh Powell, recently killed himself and his children by setting his house on fire.  Susan Powell’s policy is under question for the obvious reason that she is still missing and hasn’t been officially pronounced dead.  However, Josh Powell’s policy is under investigation because of the number and timing of changes that occurred shortly before he committed the murder-suicide.  Apparently, he made changes to his beneficiaries in late 2011, naming his siblings and father as beneficiaries rather than the trust overseen partly by his father.  Aside from the timing of the changes and all the other questions that come to mind, the question of insurable interest will certainly come up.

According to the Salt Lake Tribune, given the number and timing of changes that occurred shortly before Powell carried out the murder/suicide, “New York Life also has concerns regarding Joshua Powell’s competency at the time the beneficiary changes were made,” the court filing states. It also says “doubtful questions” exist regarding payments being made to a “slayer’s siblings and/or father.”

Obviously, there are many morals to this story, but the one I want to point out in this post is to make sure the beneficiaries you designate have insurable interest in your life.