Life Insurance And Corporate Beneficiaries

Life insurance lawyers can tell you that sometimes a corporation can be a beneficiary to a life insurance policy.  The key word here is “sometimes” because it does not mean a corporation can always be a beneficiary of a life insurance policy.

Corporations may name themselves beneficiaries of policies they buy on the lives of their important officers, directors, and stockholders, but that insurable interest does not survive the relationship that created it, and if the relationship has been terminated or the business entity no longer exists, the proceeds go to the insured’s estate.  This is discussed in a 1942, Texas Supreme Court opinion styled, McBride v. Clayton and the 1998, Tyler Court of Appeals opinion styled, Stillwater v. Travelers Insurance Company.  Historically, this type of insurance has been called “key man” coverage, because the business has an economic interest in those officers, directors, and shareholders that are “key” to the operation of the business.

A corporation does not have an insurable interest in all its officers and employees, as stated in the McBride and Stillwagoner opinions, only those of “extensive experience and skill on whom the corporation depended for its continued success.”

Situations where the “key man” insurance becomes void as to the corporation and ends up going to the estate would be where the corporation ceases to exist, the “key man” no longer works for the corporation, the corporation has substantially reduced in size and is facing bankruptcy or some other similar dire financial situation.  Each case has to be looked at individually but the preceding is a few examples where the policy would end up going to the estate.

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