Life insurance law changes as cases come to court and judges make legal interpretations of the law. Michigan law regarding beneficiary designations is no different. Michigan has provisions similar to those in other states, but court cases affect the interpretation of the beneficiary law in Michigan that exist in no other states.
Life Insurance Is a Contract
Most states, including Michigan, consider life insurance as a contract between the insured and the insurance company. In order to fulfill the contract, the company must follow the written instructions of it, including the beneficiary designation. In most cases, regardless of the will or other documents, in the event of death, the insurance company only pays the person designated by the insured as the beneficiary.
Who Gets the Money?
Life insurance policies have primary beneficiaries, secondary beneficiaries and tertiary beneficiaries. However, if all the beneficiaries predecease the insured, the according to Michigan beneficiary law, the proceeds of the life insurance policies go into the estate and probate.
The beneficiary or owner must have an insurable interest in the life of the insured, at least when the company first issues the policy. You can change it later. Chapter 22 of Michigan's insurance code defines who has an insurable interest in life insurance. A husband can purchase insurance for his children or wife's benefit. A married woman can insure her husband. An employer has the right to insure his employees, and an organization can insure the life of a person that gives consent. Other policy beneficiary designations regarding insurable interest may not fit into that narrow group but implied by common law, such as a single person insuring themselves with their estate as beneficiary.
Court Cases and Trustees
Section 2207(2) of the Michigan Insurance Code of 1956 allows anyone, including someone with no insurable interest, to be the beneficiary of a life insurance policy. Dolan v Supreme Council Catholic Mutual Benefit Ass’n and Prudential Insurance Co v Liersch cited that law when the Michigan court ruled that even if the trustee of an irrevocable life insurance trust had no insurable interest in the insured person's life. This was one exception to the insurable interest rule of life insurance.
Changing the Beneficiary
Once the insurance company issues the policy, many people think that the consideration of insurable interest no longer exists. However, in the Maryland case of Chawla v Transamerica Occidental Life Insurance Co., the insurance company denied a claim when the insured died within the contestable period, the first two years of the policy. The company stated that the trust for the benefit of Vera Chawla, a business associate and the insured, lacked insurable interest. Had the death not occurred in the first two policy years, the contestable period, there would have been no problem. At that point, you could name the dog your beneficiary.