year in San Antonio, Texas, an insurance agent was sentenced to
15 months in a federal prison, and ordered to pay $500,000.
had purchased life insurance on several homeless people and collected
the proceeds when they died, since he had named himself as the beneficiary.
is fraud, and is an example of how a good thing can be used for
was also a case of a childless nurse who bought life insurance for
her niece and then poisoned the child, so she could collect the
proceeds as the beneficiary.
cases are also a lesson to consumers that there are several levels
of care that must be exercised in managing financial matters.
use of the beneficiary designation is a common method to transfer
wealth, passing such wealth outside of the will, and thus avoiding
every type of asset allows for a beneficiary to be named, but where
it can be used, it should be used, since it creates certain efficiencies.
first is that of time. A named beneficiary is likely to get the
money in his hand in the shortest possible time. Common vehicles
that allow a beneficiary to be named are: life insurance, pensions,
mutual funds and unit trusts.
beneficiary designation also supersedes any allocation on a will.
other words, an heir named in a will to get life insurance proceeds,
who is different from the named beneficiary in the life insurance,
has no right to the money in life insurance.
insurance company will pay the money to the named beneficiary and
disregard any claims by the person named in the will.
second efficiency is that the life insurance proceeds are not subject
to tax. In the case of Key Man insurance, there is an interpretation
that needs to be noted.
Man insurance is normally bought by companies to cover the financial
loss to the business of a key person in a business.
the Key Man die, the business may lose money, because of the loss
of his expertise.
insurance proceeds can then be used to satisfy debts, tide the business
over while its doors are closed, or to satisfy the widow, for example,
who may have a claim to income from the business.
such proceeds from business insurance can be subject to tax, if
the premiums paid for the policy were expensed by the company.
better method to pay such premiums would be to increase the taxable
income of the Key Man and use that increase to pay the premium,
ie pay the premium in after-tax dollars.
will avoid taxation on the proceeds when it becomes payable.
critical learning with respect to naming a beneficiary is something
called insurable interest.
named beneficiary must have an interest in the continuing life of
the insured, or of the business, that exceeds any benefit that can
be gained from his death.
a mother loses a child, money cannot compensate for that loss; her
greater interest is in preserving the life of her child. She, therefore,
has a proper insurable interest.