Insurance Machine

Although it is typical for an individual to name his or her spouse, child, parent, or other relative as the life insurance beneficiary, non-relatives can also be named.

For instance, you can designate your estate, trust, business partner, lender, or domestic partner as beneficiary of your life insurance policy. Check the laws in your state for specific requirements, though. A few states specify that under certain circumstances an unrelated beneficiary have an insurable interest. An insurable interest exists when one party has a financial interest in another party's life. The beneficiary of a life insurance policy must expect to suffer a financial loss if the insured dies.

An important consideration is that the beneficiary of a life insurance policy generally supersedes a will for inheritance purposes. This means that whoever is named the beneficiary on your life insurance policy will receive the money, even if your will specifies otherwise. A better option may be to name a trust as the beneficiary of your policies, and then specify the disposition of the trust in your will. That way, making a single change to your will changes the recipients of your estate.

Before designating a beneficiary, you should also make sure that you understand all of the tax implications. Life insurance proceeds are generally not income taxable, but there may be other considerations. Consult with an attorney or accountant for more information.