Beneficiary Question

[Betty]

POST 2 We required a parent to sign any application taken out on a minor grandchild by a grandparent because we felt the parents are the people who know the child best (sometimes the grandparents do not even live in the same state as the grandchild) & can best attest (best answer) the medical questions asked on our application for insurance. Also, our co. just felt no one should be able to take ins. out on a child without the parents ok - again considered "gambling." However, like I mentioned previously, some companies allow a grandparent to take ins. out on a grandchild without a parent signing the application - they believe this is a close enough relationship. Many policies applied for through the mail or over the internet (without an ins. agt. taking the application) allow this. Many of these cos. also do not ask medical questions. I'm sure there isn't anything illegal in this - our co. just had some of its own rules & regulations that we had to follow
edited to add P.S. P.S. The major co. I worked for only accepted individual applications for ins. taken by ins. agents & sent to the home office for underwriting. When undewrwriting, we reviewed such things as the insurable interest of the bene, if income & net worth looked acceptable in relation to the amt. applied for, reviewed driving record, reviewed medical history, etc. (Of course, the driving rec. would not apply to children & we would look at the parents' income & net worth.)

 

[justalayman]

So basically you are saying that not allowing me to name whomever as bene or purchasing insurance on nobody in particular is not a legal decision, possible not even an insurance regulatory bodies decision but merely a company policy.

Is this the correct read of your postings?

If so, then I can name Santa CLaus as bene as long as the involved insurance company allows it. As well there is no legal claim to force them to allow this either.

And then in that case, as long as the OP's situation was allowed by the involved insurance company, all is ok in the world, right?

 

[Betty]

I believe most ins. companies require the beneficiary to have an insurable interest in the life of the insured. (suffer a financial loss at their death) We can't (for example) have people taking ins. policies out on whoever they want & nameing theirselves as bene in the hopes the person dies & they can receive the pol. proceeds - this is gambling on a person's life. I think any co. would question for more reasons than one ( like is he in his right mind ) you naming Santa Claus as your bene. He must have been good to you over the years! ins. glossary re insurable interest: A beneficiary must have an insurable interest in the life of the insured & suffer a financial loss at their death. Otherwise, the contract would not be legal & void from the start. another place definition of insurable interest: The beneficiary would suffer financial loss if the event insured against occurs - without an insurable interest, the ins. co. would not issue a policy.
However, in this case of grandparent/grandchild we have here - I see no problem with the money going to the grandparent. I am saying some cos. will accept grandparent ok as owner & bene of pol. on grandchild (we did not w/o parent's ok) -- they are accepting this as ok re insurable interest. However, they probably would not accept friend, neighbor, etc. as owner & bene of the child's policy. (& there is more of a chance of a neighbor murdering the child for the money than a grandparent doing so) I know it's all rather confusing - there have been court cases involving the insurable interest of bene's.
Let's just agree that the grandparent here should get the money - it would be nice if she does the right thing with it. Betty

 

[justalayman]

Yes, I agree the OP's case is fine as well. But I still desire to know the controlling entity behind the decisions. Is this a matter of law, governing entity regulations, or company policy?

The insurable interest requirement isn't really all that confusing. I do understand the point of insurable interest and the reasoning behind it. I understand the theory very well but who is in control of the whole game.

Many insurance companies have denied payouts based upon this and won. What I am asking is though is; who makes it so?

In both of your definitions, it only refers to the bene, not the purchaser.

And what is the limit of financial loss to be incurred to be accepted. In theory, most American deaths cost me money. Theory stretched very far anyway.

 

[Betty]

Insurable interest is a matter of state law. To keep a life ins. contract from being a wagering contract & a gamble on someone's life the person seeking to procure the policy must have an interest in the continued life of the proposed insured, so the person's life would cause him a loss, not a gain. It is not always easy to define with precision what will in all cases constitute an insurable interest, so as to take the contract out of the class of wager policies. Here is New York's law for example: N.Y. has a strong public policy against speculation on the death of individuals. Accordingly, one may not, with limited exceptions take out a policy of life ins. on the life of another. If such a policy is procured, the benefits must be payable to the person insured, his personal representative or a person having an insurable interest in the person insured. NY insurable interest: (a) As in the case of persons closely related by blood or by law, a substantial interest engendered by love & affection. (b) In the case of other persons, a lawful & substantial economic interest in the continued life, health, or body safety of the person insured, as distinguished from an interest which would arise only by, or be enhanced in value by, the death, disablement or injury of the insured.
When we decided what a reasonable amt. of ins. was on any individual life, we used a rule of thumb of 10 x annual income + 1/2 of their net worth. If a person only had a $20,000 annual income & no net worth, we would definitely not issue them a million dollar policy - this would be gambling -- the bene would not have a $1,000,000 loss at the death of the insured. A more reasonable amt. would be $200,000 or less.

 

[justalayman]

Insurable interest is a matter of state law. .

Now that is what I was looking for.

Please don;t take this as being arguementative, it is not intended that way, I really do desire to understand this and you do seem to be well educated in this and very helpful with me.

Now if you relate this back a few posts; you state that the company you worked for did things differently than some others. Does this mean to say the other companies were not following the laws or was your company being overly restrictive as a matter of company policy?


What I have been gettng at is this; if there are rules, everybody should be following the same rules and therefor have similar policies in regards to what defines "insurable interest" and if or when another had to acknowledge the issuance of a policy that is on the edge of these rules. (such as the g-parent/g-kid w/g-parent as bene and owner) Apparently this is not so. Why?

 

[Betty]

I know you're not being arguementative - I like to learn also & know what is correct. It's hard to give you a definite answer re everything since state laws differ & ins. companies differ in "some" extent re insurable interest. There have been court cases "arguing" over whether there was an insurable interest when an insured dies & a family member believes the bene did not have an insurable interest & should not be paid the proceeds. Ins. companies are supposed to take due care in issuing policies - that there is an insurable interest of the owner to the insured (though they are many times one & the same) & an insurable interest re bene & insured. Some ins. cos. have issued policies where there was no insurable interest & the insured was killed for the money & the ins. co. was held liable by the courts for not using due care in issuing the policy. The grandparent/grandchild situation is where some cos./some states differ - some cos./states believe someone (even a relative) should not be able to take out & be bene on a minor child's pol. without the parents' ok & one of them also signing the application along with the owner. There was one case in La. where an ins. co. issued a pol. on a minor niece - aunt owner & bene -- was done without parents' consent. (knowledge) The aunt murdered the child for the money - the court held the ins. co. liable since the courts felt the aunt had no insurable interest in the life of the child & took the pol. out w/o parents' consent which the court felt the ins. co. knew since a parent did not sign the application. Therefore, states & ins. cos. are being more & more strict re insurable interest. However, in the very vast majority of policies issued there is usually not a problem - an insurable interest does exist between owner/bene/insured. (most have immediate family members as bene or re business ins. partners may buy ins. for example on one another & be bene on each other's policies to buy out the deceased partner's share of the business.) I know I wrote a book here - this is the best I can do. There is just that there are differences re state laws & ins. companies. I can say that most major ins. cos. would question why a non-related person is taking out an ins. pol. on someone's life & being bene. There have been articles written about this -- sometimes bene's slip by when applications reviewed at the home office & people murdered & ins. companies held liable. Betty

 

[justalayman]

Thanks Betty.
Suffice it to say, this area of the law is just as confusing and is continually being defined. The same as many other areas of law. That is why we have the courts and all the involved personnel.

Thanks again.

 

[Betty]

You're very welcome. Yep - ins. law is confusing & continuing changing as are many areas of law as you indicate. (nothing is ever cut & dried) Our co. was "conservative" re insurable interest of owner & insured & bene & insured + having parents acknowledge ins. taken out on their children -- the co. didn't want to have to deal with any problems which COULD pop up in the future. Betty P.S. Nice talking to you.