Life Insurance Policy for Non Relative
Life insurance is designed to return finances to the same state they were before the death of the insured. Profiting from life insurance is not allowed because that would be considered a form of gambling. Because there is supposed to be no profit from the proceeds, insurance companies have to be very careful whom they will insure and for how much. If the policy does not meet the standards set by state law and the insurance company, it will be denied.
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Insurable Interests
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The only legal way to take out a life insurance police on someone other than oneself is to show a direct and tangible potential for financial loss if the potential insured would die. This is referred to as the doctrine of "insurable interest." Without proving insurance interest, loss insurance companies are required to turn down a policy on a third party. For close family members such as spouses, or parents and children, the insurable interest is automatically assumed.
Traditional
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Non-family insurable interests generally falls into two categories. One is a business relationship. A company may have an insurance policy on the CEO, or a star salesperson. Sports teams have policies out on players, and producers have them out on the actors while filming a movie. In these cases the loss of the person would be a financial setback to the company.
Creditors are also allowed to own a life insurance policy on those who owe them money, with the permission of the insured. A mortgage company may have as its policy that every new homeowner have a decreasing term policy as a condition for the home loan. As the years go by, the benefit of the policy decreases, matching the amount of money still owed on the home. When the mortgage is done, the policy is also done.
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Partners
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Non-traditional living arrangements are in a state of flux in 2010. Some insurance companies are more willing to work with couples who live together but are not married, and with gay couples. Other insurance companies follow the letter of the law more closely.
Establishing Insurable Interest
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An insurance company is generally much more willing to work with a non-married couple if they can prove joint financial responsibility. Both names on a mortgage, other assets in common or one person providing the bulk of financial support can sometimes tip the balance of decision making for the insurance company. The company needs a paper trail, though, if someone questions the decision in the future.
State/Federal Laws
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As of 2010 the trend in many states has been to turn down any expansion of the ability of non-traditional couples to receive official recognition that would create an automatic insurable interest. This has been balanced by a willingness to consider relaxing the laws concerning benefits provided by third parties. The federal government provides its own employees a limited ability for couples to elect an insurable interest for some benefits but has not extended this to the general population.
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References
Resources
- Photo Credit couple image by cherie from Fotolia.com
