Life Insurance Beneficiary: Can I Choose My Boyfriend?

Choosing a beneficiary for your life insurance policy is a personal decision that requires careful thought and consideration. While many married people choose their spouse as the beneficiary, selecting a beneficiary can be more complicated for unmarried people. It is important to choose a beneficiary who has an insurable interest, meaning that they would face financial hardship upon your death. This could include a boyfriend or girlfriend, but it is important to consider the stability of the relationship and whether there is shared property, joint obligations, or children involved. If you are unsure about naming your boyfriend as your life insurance beneficiary, you may want to consider other options, such as choosing a close family member or setting up a trust. Ultimately, the decision should be based on your personal situation and goals for the money.

The importance of insurable interest

In simple terms, insurable interest means that you would suffer financial loss or hardship if the insured person were to pass away. This could be due to a loss of income, increased expenses, or other reasons. By requiring insurable interest, insurance companies can help prevent fraud and moral hazards, such as situations where a policyholder might benefit financially from causing harm to the insured.

Insurable interest can be established in several ways. One common way is through direct relationships, such as those formed by blood, marriage, or adoption. For example, a parent can insure their child because losing them would likely result in financial strain. Similarly, spouses can insure each other as their lives are intertwined financially and otherwise.

Insurable interest can also be established in business contexts. For instance, business partners may insure each other to cover potential losses and ensure business continuity. Creditors can also take out life insurance policies on their debtors, with the debtors' consent.

It's important to note that insurable interest must exist at the time of purchasing the policy. This means that you can take out a life insurance policy on yourself and name anyone as a beneficiary, as long as the insurable interest requirement was met when the policy was initially approved.

In summary, insurable interest is crucial in life insurance as it ensures that policies are used for their intended purpose and helps prevent fraud and moral hazards. By establishing insurable interest, individuals and businesses can protect themselves financially from the loss of someone they depend on.

Consent and the insurable interest test

Insurable interest is a term used to describe a situation where one person would face financial hardship if another person were to pass away. In simpler terms, if an individual depends on their partner's income for essentials like rent or bills, then their death would significantly impact their finances. This interest can be economic or sentimental, based on love and affection, and is generally easy to prove in direct relationships through blood, marriage, or adoption.

Consent is typically given by signing the life insurance application or policy, or through a phone interview conducted by the insurance company. Without consent, it is illegal to purchase life insurance for another person, and it could be considered insurance fraud.

When purchasing life insurance, it is essential to establish both consent and insurable interest. The insurance company will investigate the relationship to determine if there is a valid insurable interest. If an insurable interest is not found, the policy application will be denied, or the death benefit will not be paid.

Primary vs. contingent beneficiaries

Yes, a boyfriend can be a beneficiary of a life insurance policy. However, there are some considerations to keep in mind. Both parties must agree to and sign the policy, and the insured party must undergo a medical exam to show insurability. Additionally, it is important to consider the stability of the relationship and whether there is a financial dependency between the two parties.

Now, let's discuss the difference between primary and contingent beneficiaries.

When setting up a life insurance policy, retirement account, or living trust, it is essential to designate both primary and contingent beneficiaries to ensure your assets are distributed according to your wishes.

A primary beneficiary is the first person or entity in line to receive the assets upon your death. You may name more than one primary beneficiary and decide how the assets will be divided among them. For example, you can name your spouse as the primary beneficiary and your two children as dual primary beneficiaries, with your spouse inheriting half and each child receiving one-quarter of the assets.

On the other hand, a contingent beneficiary is the second in line to inherit the assets. They will only receive the assets if the primary beneficiary has predeceased you or cannot be located. For instance, if you name your spouse as the primary beneficiary and your child as the contingent beneficiary, your child will only inherit the assets if your spouse passes away before you.

It is important to note that beneficiaries do not have any legal rights to your assets during your lifetime and can be changed at any time, except for irrevocable accounts. Reviewing and updating your beneficiary designations regularly is crucial, especially after significant life events or changes.

Changing beneficiaries

Changing the beneficiary of your life insurance policy is a straightforward process, but it's important to keep your selection up to date. The person who has taken out the life insurance policy is the only one who can decide on and change the beneficiary. Most policies list one beneficiary, but some allow for more than one.

You can change the beneficiary at any time, depending on the terms of the policy, without any penalty or fee. However, it's a good idea to keep a few backup beneficiaries in mind, as you may not be able to change the beneficiary after your death.

To change the beneficiary, you need to contact your insurance company, as the process may vary depending on the provider. Generally, you will need to fill out a change of beneficiary form, which includes information such as the policyholder's name, the new beneficiary's name, and the reason for the change. Once you complete the form, you must submit it to the insurance company for approval.

It's essential to keep your life insurance beneficiaries up to date, especially if your life circumstances have changed, such as getting married, divorced, or having a child. This ensures that the death benefit payout will go to the intended recipient.

Common mistakes when naming a beneficiary

Yes, you can get life insurance for your boyfriend with his consent and if you have an 'insurable interest'. This means that you would face financial hardship if your boyfriend were to pass away.

Now, when it comes to naming a beneficiary, there are several common mistakes to avoid. Here are some of the most important ones:

Not Updating Beneficiaries

One of the most common mistakes is failing to update beneficiaries when life circumstances change. It's important to review and amend beneficiaries regularly, especially after major life events such as marriage, birth, death, or divorce. People often forget to remove ex-spouses or add new family members, which can lead to unintended consequences.

Naming Minors as Beneficiaries

Naming minors as direct beneficiaries can also cause issues. In most states, naming a minor as a beneficiary will subject the life insurance proceeds to a court-ordered guardianship, resulting in additional court and attorney fees. Instead, consider setting up a trust or designating a financial guardian to manage the funds until the child is of legal age.

Not Naming a Contingent Beneficiary

Another mistake is failing to name a contingent beneficiary. If the primary beneficiary passes away before the policyholder and no contingent beneficiary is named, the policy proceeds may be subject to probate, resulting in additional court and attorney fees.

Forgetting Tax Implications

Naming a beneficiary who receives needs-based government benefits can also have unintended consequences. The additional income from the life insurance payout may cause the beneficiary to lose their government benefits. Creating a special needs trust and naming the trust as the beneficiary can help protect the assets and supplement the government benefits.

Making Assumptions About Your Will

Many people assume that their will takes care of all the details regarding their estate. However, beneficiary designations take precedence over what is stated in a will. It's important to ensure that beneficiary designations are consistent with the terms of the will to avoid confusion or conflict.

Not Having a Plan B

Failing to name multiple primary and secondary beneficiaries can also lead to issues. If the primary beneficiary is unable to collect and no secondary beneficiary is named, the court will decide who receives the funds. It's important to be specific and spell out how you want your assets divided to avoid any misunderstandings.

Frequently asked questions