|Question: Do I need to name a relative the beneficiary of my life insurance policy, or can I name a friend instead?|
There's no requirement that you name a relative as the beneficiary of your life insurance policy. It's certainly possible to name your friend as beneficiary, but you'll need to check first on the laws in your state. Some states require that your beneficiary have an insurable interest in your life if he or she isn't related to you (at least at the time the contract is initiated).
When applicable, an insurable interest means that the beneficiary of a life insurance policy has a financial interest in the insured's life. In other words, the beneficiary must expect to suffer a financial loss when the insured dies. The insurable interest must exist when the life insurance policy is applied for, but not at the time of the insured's death.
Spouses, parents, and children are automatically presumed to have an insurable interest in each other, but not so for friends. For states that require it, you'll need to demonstrate an insurable interest in order to designate your friend as the beneficiary of your life insurance policy. For example, if the two of you jointly own a home or some other asset, the insurable interest would equal the value of your share in the asset. For more information, contact your insurance company.