This week, we are talking about the concept of insurable interests in life insurance. On Monday, I explained what an insurable interest is. Today, we are going to talk about Florida’s insurable interest law. This applies to life insurance policies that were issued in the State of Florida, and regulates who may take out a policy, as well as who may be named as a beneficiary of a life insurance policy in Florida.
Florida Statute Section 627.404 – Insurable Interest in Florida Life Insurance Policies
The current Florida law defining insurable interest – statute § 627.404 – stems from the 1950’s. At one time, a person could not even name a beneficiary on their own life insurance if the beneficiary did not have an insurable interest. In Florida, that changed nearly 10 years ago, but one still cannot buy a life insurance policy on the another’s life in Florida if they do not have an insurable interest.
Your own insurance policy – Who can you name as a beneficiary?
Florida Statute § 627.404(1) states, “Any individual of legal capacity may procure or effect an insurance contract on his or her own life or body for the benefit of any person.” That means that you can take out a life insurance policy, and name anyone you want as a beneficiary. That was not always the law, but any life insurance contract issued in Florida since 2008 certainly may name any person as the beneficiary.
In Florida, who has an insurable interest that allows them buy a life insurance policy on someone else?
In Florida, there are 8 approved groups of people that have insurable interests in someone else’s life. Florida Statute § 627.404 explains that only the following individuals may have an insurable interest:
Family by blood or law:
The law includes anyone who “is closely related by blood or by law and in whom the individual has a substantial interest engendered by love and affection.” This would include married people and adopted children. Whether someone has the right level of “love and affection” has been the source of a lot of litigation over the years though.
A financial interest in the person’s life:
The law requires someone in this category to have “an expectation of a substantial pecuniary advantage through continued life, health, and safety of the other person” and a financial loss if they die. For example, someone who is receiving support from another, such as an ex-spouse receiving alimony or child support, would have an insurable interest in the person paying those monies.
Parties to the purchase or sale of a business:
When people do a business deal to buy or sell a company, they have an insurable interest in the other party living to see the end of the deal.
A trust or its trustee:
If a trust owns a life insurance policy on a person who is the grantor of the trust or in who the grantor has an insurable interest, the trust and trustee have a legal insurable interest on the person if the life insurance proceeds are for the beneficiaries of the trust.
A guardian, trustee or other fiduciary:
If the person is acting as a fiduciary for the benefit of someone for whom they hold property, they have an insurable interest.
A charitable organization:
Any 501(c)(3) charity has an insurable interest in someone’s life, if that person consents in writing to the charity buying or owing life insurance on them.
An employee benefit plan sponsor or trustee:
If a person consents in writing to their employer or a plan trustee (often a life insurance company) to the sponsor or trustee owning an insurance policy on their life, there is an insurable interest. This is very often done through signing up for an employer’s group benefit plan.
Key man insurance:
A business has an insurable interest in “any of the owners, directors, officers, partners, and managers” of the business entity. Written consent is required from the person whose life is insured.
Insurance companies may refuse to write policies for someone who lacks an insurance interest
When someone does not have an insurable interest, they do not have a legal right in Florida to buy an insurance policy. As a result, insurance companies may refuse to issue a policy to such a person. If a policy is obtained (either by fraud or error), the insurer may legally void the policy within 2 years under Florida law and refund any premiums paid.
Takeaway:
If someone is trying to buy a life insurance policy in Florida, the insurable interest law requires them to fall into one of 8 groups to have a legal right to buy the insurance. If a person buys a life insurance policy on their own life, they can designate anyone they want as a beneficiary.
