Life Insurance Beneficiaries

People living in Grand Prairie, Dallas, Fort Worth, Arlington, Carrollton, Burleson, Aledo, or anywhere else in Texas who have life insurance are usually going to have a place in the life insurance policy where they name a beneficiary. Things will happen after naming the beneficiary to make the insured want to change the beneficiary.
The person named as a beneficiary in a life insurance policy is the person who receives the benefits of the policy upon the death of the person insured by the policy. The named beneficiary is often times a spouse of the named insured or the children of the named insured. Other times it is a creditor or an estate. Sometimes it is a business partner.
It is well settled law that a life insurance beneficiary must have an insurable interest in the insured’s life. This was stated as early as 1894 by the Texas Supreme Court in the case, Cheeves v. Anders. It was restated in 1998 by the Houston Court of Appeals [14th Dist.] in Tamez v. Certain Underwriters at Lloyd’s, London International Acc. Facilities, and again in 1998 by the Tyler Court of Appeals in Stillwagoner v. Travelers Insurance Co.
The basis for the rule is two fold: no one should have a financial inducement to take the life of another; and a life insurance policy for the benefit of one without an insurable interest is a wagering contract.
Here is an example: In Tamez an employer bought a life insurance policy on the life of its employee. The employer argued that the Texas Insurance Code does not require an insurable interest. The court held that the statute does not eliminate the judicial requirement of a beneficiary’s insurable interest in the insured’s life.
The courts have allowed three categories of insurable interests. As stated by the Texas Supreme Court, Federal Courts, and other lower courts, those who have an insurable interest in the life of another fall into three general classes:
1) one so closely related by blood or affinity that he or she wants the other to continue to live, irrespective of monetary considerations,
2) a creditor; and 3) one having a reasonable expectation of pecuniary benefit or advantage from the continued life of another.
The third category has been explained this way:
Bluntly expressed, insurable under (the third) classification, is determined by monetary considerations, viewed from the standpoint of the beneficiary. Would he regard himself as better off from the standpoint of money, would he enjoy more substantial economic returns should the insured continue to live; or would he have more, in the form of the proceeds of the policy, should she die.
As should be clear from the above, you or I cannot take a policy of insurance on a stranger or someone who is merely a friend. However a creditor may designate itself the beneficiary of a policy purchased by it on the life of its debtor, but its insurable interest is limited to the loan balance at the insured’s death; the rest of the policy proceeds belong to the insured’s estate. This was stated in the Texas Supreme Court case, McAllen State Bank v. Texas Bank & Trust Co., in 1968.
When an insurance company is not sure if the named beneficiary is entitled to the life insurance proceeds or if there are competing claims for the life insurance proceeds the insurance company will become concerned about its contractual liabilities and whether or not they are violating relevant sections of the Texas Insurance Code. When this happens they will interpread the proceeds of the life insurance policy into the registry of the court and thus allow the courts to judicially resolve the matter. The problem with doing it this way is that it forces the potential beneficiaries to incur legal expenses in the hiring of attorneys to protect their financial interests in the proceeds. Of course, if they do not hire an attorney they might end up with nothing.