There was a time in the early twentieth century when unscrupulous people purchased life insurance plans on strangers and profited when they died. This gave them an incentive to murder the insured person.
If caught, the murderer would not receive the proceeds. Beneficiaries who were not involved in the crime could however receive the life insurance proceeds. Insurance protection included coverage for murder, but a convicted murderer could not benefit from his or her crime. This is the case today also.
This unsavory business ruined more than one family. The incentive to receive death benefits from a life insurance policy caused many suspicious deaths.
Today a beneficiary can still receive money when the insured is murdered. Instead of limiting the terms of life insurance policies in a way that might disenfranchise widows and orphans, the insurance companies have made other changes.
The insurance companies limit the face amount of their policies on a case-by-case basis. The primary factor is the insured’s income. This means that unless your eight-year-old is a movie star, you will not be able to get a one million dollar life insurance policy on her. The payment of a death benefit that is too high, can add incentive to fraud and murder even for some parents.
The amount of insurance that a person who works for a living can get is largely associated with the amount they are paid in their business or job. The amount needed to provide for a family is higher than most think. Coverage that is twenty times an insured’s annual pay is usually well within the limits imposed by the insurance carriers.
In addition to limiting the amount of coverage that a person can get, the insurance companies generally require that the insured sign the contract. Another party can pay the premium, but the insured should be aware that he or she is insured.
Another change is the limit on who can be listed as a beneficiary when the contract is drawn. The insurers try to make sure that the beneficiary has a financial or other interest in keeping the insured alive. The costs of losing the insured party, whether emotional or financial should be greater than the amount of money the beneficiary receives.
The beneficiary must have what is known as an “insurable interest.” Family members are usually assumed to have an insurable interest. Business partners are also assumed to have an insurable interest each other.
There are much fewer suspicious accidental deaths today than there were before these changes were made. The carriers have limited the potential amount of death claims. They have required the signature of the insured party in most situations. They have also limited the people can receive money when someone dies. This has reduced the number of court cases where insurance was the motivation for a person being killed.
These changes have also had a positive impact on rates. It has also affected the lives of the many that now live for more years than they would have otherwise.