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Can Your Boyfriend or Girlfriend be the Beneficiary of Your Life Insurance?

October 22, 2024

Can My Life Insurance Protect my ‘Significant Other’ if We Aren’t Married?

As more Americans delay marriage while still moving in and sharing bills with their partners, questions about financial security arise. One common question is, “Can my life insurance protect my partner if we aren’t married?” The answer is yes, but only if you have a way to prove that they have what is known as an ‘insurable interest.’

In this article, we’ll break down this concept and guide you through the process of buying a life insurance policy and naming your domestic partner, boyfriend, girlfriend or fiancé/fiancée as a beneficiary of that policy, and how this has similarities to how a married person might name their spouse as the beneficiary.

What Is Insurable Interest?

When you purchase a life insurance policy, you are asked to specify who you want to be named as a ‘beneficiary’ of the policy. This beneficiary is a formal role on a life insurance policy that indicates who will receive the death benefit proceeds when the insured person dies.

But to be a beneficiary, that person needs to have what is known as an “insurance interest” in the insured person’s life.

Insurable interest is a term used to describe a situation where one person would face financial hardship if another person were to pass away. In simpler terms, if you depend on your partner’s income for essentials like paying rent or bills, then their death would significantly impact your finances.

Establishing insurable interest may involve extra steps if you’re not legally married. However, the industry is becoming more flexible, adapting to modern relationships and making it easier than before to prove your financial dependency.

Buying Life Insurance to Protect the Financial Interests of Your Boyfriend or Girlfriend

As stated above, unmarried couples in long-term relationships who want to buy life insurance on themselves and name one another as the beneficiary may need to show proof of insurable interest to the life insurance carrier.

Examples of insurable interest can include:

  • Both individuals being named on a lease
  • Joint ownership of a home or business
  • Shared debts like a car loan
  • Having children together

In some cases, getting life insurance for your partner may be challenging, particularly if:

  • You have only been dating for a short period of time
  • You don’t live together
  • You’re not financially dependent on each other

TIP: When filling out your application, use the titles “significant other” or “partner” instead of “boyfriend” or “girlfriend”.

Buying Life Insurance to Protect Your Fiancé/Fiancée

For engaged couples, it’s generally simpler to get life insurance because insurance providers consider you to have a higher level of commitment and financial dependence.

Some providers may inquire about a wedding date, although it’s not usually a requirement.

Buying Life Insurance to Protect Your Spouse

Married couples automatically qualify for insurable interest. They usually share a home, expenses, and may even be raising children together.

You and your partner should both have life insurance, as soon as you have shared financial considerations and expenses, and you depend on one another to maintain the lifestyles that you have together.

Policy Ownership vs. Naming Your Partner as Beneficiary

Almost all life insurance companies will allow committed partners to apply to own policies on one another. In this scenario, each partner plays a role as the ‘policy owner’ on a policy that insures the other person’s life and/or vis-a-versa.  When this happens, the ‘policy owner’ is a person different than the ‘insured’ person. While this happens in some cases, it isn’t necessarily the rule.

The simpler and more straightforward way to secure each other’s financial future is to each purchase a policy on yourself (and name yourself as *both* the ‘insured’ and the ‘policy owner’. Then name the other person, as the beneficiary of the policy.

Advantages of Owning Your Policy and Naming Your Partner as Beneficiary

  • Control: In this case, you have control over your policy. You can change beneficiaries, adjust coverage, and otherwise manage the policy as you see fit.
  • Premium Payment: You’re responsible for paying premiums, so you aren’t relying on anyone else to ensure the policy remains in force.
  • Information Access: You’ll receive all communications about the policy.
  • Payout: Your partner would be the beneficiary and would receive the death benefit directly. Usually, this payout is tax-free and bypasses probate, allowing quicker access to funds.

Key Points to Consider

  • Flexibility: Owning your own policy allows you to adapt it to changing circumstances. If your relationship with your partner changes, you can easily modify the beneficiary.
  • Trust: Trust plays a crucial role regardless of who owns the policy. If your partner owns a policy on you, you’ll need to trust them to manage it responsibly.
  • Estate Planning: Assess how each option aligns with your overall financial and estate planning objectives. Owning your policy may have tax implications if the value of your estate surpasses the exemption limit.
  • Communication: Regardless of the arrangement, clear communication is essential to make sure both parties understand the policy’s terms and obligations.

Alternative Options

If you’re having difficulty getting coverage approved where your unmarried partner is named as a beneficiary, you could list your estate as your policy’s beneficiary and specify in your will that your partner should receive the insurance proceeds. Keep in mind, this means the payout would be subject to probate and may cause a delay in accessing the funds.

If you name your estate as your beneficiary, you can go back and change it to your significant other once it’s active. A policy owner can change their beneficiaries at any time.

However, wait a few months to change it. Making a quick change may raise red flags for the insurance company.

So, whether you’re engaged, married, or in a long-term partnership, it’s crucial to discuss your options openly and decide together how to protect your shared financial future. So go ahead, take that step, and give yourselves the peace of mind that comes from knowing you’ve planned responsibly for whatever life has in store.

Protect your family today!

You are just minutes away from the financial security your loved ones deserve.

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