Nontraditional Beneficiary Options


Choosing a beneficiary is one of the most important decisions you can make regarding your life insurance policy. While most individuals choose a close relative or friend, you may find yourself considering other options, or even multiple beneficiaries, for a variety of reasons.

What is a Beneficiary?

A beneficiary is the person or entity who receives the death benefits from your life insurance policy after your passing. Your beneficiary does not have to be related to you, and in fact it doesn’t even need to be a person. In addition to your primary beneficiary, a contingent beneficiary can also be named in the event that the primary beneficiary dies before the policyholder.

Your insurance provider will reserve the right to approve your beneficiary. As we will continue to explore, nontraditional beneficiaries can include organizations, companies, or other institutions as opposed to individuals.

How is Insurable Interest Determined?

Your life insurance company will be looking for “insurable interest” between you and your beneficiary. Insurable interest is another way of describing financial dependency. The beneficiary should be someone whose finances would be negatively impacted by your passing. The perceived risk associated with financial obligation is intended to protect you and your estate against malicious or harmful acts.

When applying for life insurance, the provider will look at your relationship with the beneficiary to determine that sufficient insurable interest is present.

Nontraditional Life Insurance Beneficiaries

There are many scenarios in which insurable interest can be established. Some examples of nontraditional life insurance beneficiaries include:

  • Parents. An elderly, retired, or financially dependent parent can be negatively impacted by your passing. Parent beneficiaries are also increasingly popular in situations where parents have co-signed on student loans for their children.
  • Charities. A consistent donor to a charity can name the organization as a beneficiary. A history of regular support must be established in order to illustrate financial dependency.
  • Trusts. Safeguarding your benefits in a trust can ensure distribution according to your exact wishes, specify terms of inheritance, and keep your information private.
  • Businesses or Employers. If you are an owner or vital employee of a business, naming the business as your beneficiary can ease the impact of losing an important figure unexpectedly.
  • Bank. A life insurance policy can be used as collateral on a loan. Naming the bank as a beneficiary will ensure that your debts are paid, and the rest will go to a contingent beneficiary.

Our Fishers agents can help you determine eligibility for beneficiaries in accordance with your unique circumstances and local laws.

Can I have Multiple Beneficiaries?

You can have as many beneficiaries as you desire, as long as each one has insurable interest. You have the freedom to determine exact dollar amounts or, alternatively, percentages of your death benefits. There are also additional stipulations regarding the redistribution of one beneficiary’s benefits in the event that they die before the insured.

Evaluating Your Life Insurance Options

Osborn Insurance Agency is your authority for life insurance. Our Fishers, Indiana insurance agents understand the importance of choosing your beneficiary and are happy to answer any questions you may have.