To be a beneficiary on a life insurance policy, you need to have an “insurable interest” in relationship to the insured, i.e. would you suffer economic loss at the demise of the policy insured? Conventional beneficiaries are family members, business partners or charities that depend on the insured.
The beneficiary of a life insurance policy can be a relative, business colleague, person or entity to whom money is owed, funeral home, charity, fiance, domestic partner, live in friend, or anyone else with a financial tie. If they would suffer financially if you died, they can be your beneficiary. Or if you are now receiving money from them, life insurance can be a way of paying them back.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Once a policy is in force the beneficiary can be changed to almost anyone. The person with the authority to change the beneficiary is the owner. The insured doesn’t have any control over the policy once it is issued. This can lead to bizarre beneficiary designations. The requirement that there be an “insurable interest” does not apply once the policy has been issued.
Life & Health Insurance Agent, The Tooker Agency, Riverhead NY
Sometimes partners in a business will draft a buy-sell agreement. This agreement will define what happens to the business if one of the partners dies by mandating that the surviving partner buy the deceased partners share of the business at an agreed upon price. In this way each partner knows that should he die his heirs will receive a fair price for the value of the business. It also protects the surviving business owner from becoming partners with the deceased owners family. A buy-sell agreement is usually funded with life insurance policies. The partners will be the owners and beneficiaries of each other's policies.
Businesses will also sometimes take out insurance policies on key employees, known as key man insurance. In these situations the business owns the policy and is the beneficiary of the policy.
Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
Maybe there are different rules in other states, but according to the insurance manual I studied for my insurance producer license the Owner of the policy may assign ANYone they choose to be their Beneficiary. It can be a family member or a friend. It can be a charity or the homeless guy at the park, (as long as you know his name and he can identify himself positively). In order to buy insurance on someone you must have an insurable interest, but the owner of an insurance policy may name anyone they want as the beneficiary.
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Businesses will also sometimes take out insurance policies on key employees, known as key man insurance. In these situations the business owns the policy and is the beneficiary of the policy.