Life insurance policies rarely dictate a difference between a child and a stepchild, says Virginia-based insurance executive Courtney Rogers. However, Rogers adds, the process of buying or claiming an insurance policy can change based on whether somebody is a birth child or stepchild.
Definitions
One major factor in whether child vs. stepchild matters is the relationship of the individual to the policy. To understand this, you need to understand the concept of insured, policyholder and beneficiary. The insured is the person on whom a life insurance policy is taken out, the person who must die for the policy to pay. The policyholder is the person paying for the life insurance policy. In most cases, the policyholder is the only person with the right to make changes to or decisions about the policy. The beneficiary is the person who receives the money once the insured dies and the policy comes due. It is possible to be both the policyholder and the beneficiary of a policy, or to be both the policyholder and the insured. It is not possible to be both the insured and the beneficiary.
Insured
If a child is the insured on a policy, most states require a parental signature approving the policy, says Irina Kerr in "Life Insurance and Its Applications." As a stepparent, you may or may not have the right to sign documents for your stepchild. As a parent or adoptive parent, you automatically have that legal right.
Policyholder
As an adult, you must be able to demonstrate "insurable interest" in order to take out a life insurance policy on another person. This means you must be able to demonstrate that the death of that person will affect you financially and/or emotionally. According to Kerr, a child is assumed by law to have an insurable interest in a birth parent. Although it's very common, not all jurisdictions recognize this relationship automatically with a stepparent.
Beneficiary
A policyholder can name anybody she wants as the beneficiary of a life insurance policy, says Rogers. This means there is no difference between a child and a stepchild when it comes to being the beneficiary of a policy.
Estate
Although you can't be both the policyholder and the beneficiary of a life insurance policy, you can name your estate as the beneficiary. This amounts to much the same thing. A life insurance policy with the estate as beneficiary is treated like all the other assets of the deceased. In some states, birth or adoptive children have different rights in probate from stepchildren. This can result in a difference when it comes time to distribute insurance money paid to the estate.
References
- Courtney Rogers; Insurance Executive; American Income Life, Richmond, VA
- "Life Insurance and Its Applications"; Irina Kerr; 2001
- "Exam Cram: Life and Health"; Bisys Education; 2005
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