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Understanding requirements for life insurance policies Understanding requirements for life insurance policies

06/14/11

Understanding requirements for life insurance policies

When purchasing a life insurance policy it is important to note that the owner and the beneficiary must have an insurable interest in the insured's life, according to the LIFE Foundation. That means the person receiving the policy benefits would suffer a direct and measurable financial hardship if the insured were to die.

There are several different levels of insurable interest that may be considered valid for making a life insurance claim. This can include a spouse, fiance, domestic partner, parent, child, business partner, employer, or creditor, Insurance360.com reports. Their interest is typically determined when the policy is purchased, but can be changed after the fact if the insured wishes to do so.

Experts believe that it is very important to be specific when naming a beneficiary. If the policy reads "wife of the insured", an ex-wife could end up collecting after the passing of the policyholder, according to LIFE. If a child is named, but passes away, one may forget to change their policy to include their grandchildren. Using an insurance agent can often minimize these issues and make it easier to make changes when necessary.

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