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Buying Life Insurance on Someone Else
March 17, 2020
Buying life insurance for yourself can be a relatively straightforward process. But what if you want to buy a policy on someone else? In that case, the application process becomes a little more complicated. You can't buy a policy on just anyone, for example. You'll need the proposed insured person’s consent and, likely, their help filling out the application as well. And you’ll need what insurers call insurable interest in the life you’re trying to insure.
If you want to buy a life insurance policy on someone else, here’s what you need to know.
Can I take out life insurance on someone without them knowing?
It’s illegal to take out a life insurance policy on someone without them knowing. Doing so is also quite difficult. For starters, you’ll need this person’s signature on the application, assuring the insurance company that the proposed insured person gives their consent.
For most policies, you’ll also need a lot of personal information about the insured person. An application typically includes questions about medical history, family health history, and habits. And the insured person will likely need to give the insurer permission to look up financial information, driving records, and more.
Finally, unless you’re attempting to purchase no exam life insurance, the insured person will need to have their blood drawn, urine taken, blood pressure measured, and more as part of a life insurance medical exam.
If you want to purchase life insurance for someone else, you'll need their consent—and their participation throughout the application process.
What qualifies as consent
In addition to being willing to participate in the application process, the person you want to insure must be legally able to give their consent at the time of application.
- Sober: The proposed insured person can’t be drunk or under the influence of drugs when they provide consent.
- Mentally sound: The insured person may not have a mental illness that legally impairs their judgment, or a legal guardian must give consent instead.
Of age: A person 18 or younger can’t give consent for a life insurance policy, so you’ll have to have a parent or legal guardian’s consent.
What is insurable interest?
Along with consent, you must have insurable interest in the person you want to cover. In a nutshell, insurable interest means that you have a reasonable expectation of experiencing a loss, usually financial, if the insured person were to die.
You have a clear potential for financial loss if your spouse passes away, for example, because you likely share living expenses. But you probably couldn’t prove insurable interest in the life of a neighbor, even if you’re also really good friends, because their death wouldn’t affect you financially.
Learn more about insurable interest in life insurance.
Who can I buy a life insurance policy for?
There aren't any strict rules about who you can take out a life insurance policy on—as long as you prove that your relationship with this person includes insurable interest. But it will be easier to demonstrate insurable interest for some people in your life than for others. Here are the people you’ll most likely be able to buy life insurance on.
Child or grandchild
Many people insure their children or grandchildren. With minor children, the purpose of life insurance is often to insure the child early to guarantee they'll have at least some coverage later in life while building a cash value that could be used for college tuition or a wedding.
With grown children, parents and grandparents find themselves cosigners for college, auto, and home loans to help their kids build the foundations of financial stability. If you’ve cosigned on any loans, you’ll be responsible for paying off the debt if the child either doesn’t pay or passes away. A life insurance payout can help cover that amount if your child passes away. Of course, if your adult child merely defaults on the loan, a life insurance policy can’t help.
For small debts, the cost of life insurance may not be worth it. It’s certainly possible to pay more in premiums than you’d have to pay toward the debt. But in the face of a large loan, a life insurance policy could make sense.
In each of the above scenarios, you’d have an insurable interest in the child. Learn more about life insurance for children.
Spouse, significant other, or ex
Most couples depend on each other for financial well-being, so proving insurable interest for your spouse is typically straightforward. If your spouse is a breadwinner, you may rely on their income to pay the mortgage, keep food on the table, and care for your children. If your spouse is a stay-at-home parent, they likely provide a whole host of services, such as childcare and homemaking, that you'd have to pay for if your spouse passed away.
Similarly, you may have insurable interest in a significant other if you live with them, bought a home with them, or share children.
If you have an ex who pays you alimony or child support or helps you care for your children, you may be able to buy life insurance on a former spouse. In some cases, a judge may require life insurance for an ex-spouse as part of a divorce settlement.
Parent
Many people’s financial health is intertwined with their parent’s lives, even into adulthood. If your parents help you care for your children, for example, you might experience significant financial loss in addition to the emotional loss if a parent passes away. Or perhaps you would plan your parent’s funeral and need to find a way to cover the expenses of saying goodbye in just the right way.
Either way, talk to your parents to see if they already have coverage in place. If not, you may be able to buy life insurance for a parent.
Sibling
Buying life insurance on a sibling may be a bit trickier because not all siblings can prove insurable interest. Of course, if your brother or sister helps care for your children or shares your mortgage, insurable interest would exist. Or maybe your sibling helps care for or pay the bills of your aging parents.
In these cases, you’d have insurable interest in your sibling and may be able to buy life insurance on them.
Business partner or key employee
Outside of family, one of the most common situations for purchasing life insurance on someone else is business. If you have a business partner or co-owner, the company may be in jeopardy if one of you died. There may also be questions about who would inherit the deceased's part of the business. Many partners buy life insurance to fund a buy-sell agreement. This agreement allows the surviving partner to buy out the heir of the deceased using the payout of a life insurance policy.
Sometimes, an employee is critical enough to business operations that their death would threaten the company. If your star salesperson or top product designer passed away, you might lose business or spend time and money to hire a replacement. In this case, you may buy key person life insurance.
Conclusion
If you want to purchase life insurance on someone else, remember that you'll need insurable interest. You'll also need the person's consent and likely their participation in the application process. Breaking the rules of insurable interest or consent can result in denied applications now—or a denied claim in the future.
Because buying life insurance on someone else can be more complicated than buying a policy for yourself, consider working with a licensed agent who can help ensure things go smoothly. In the meantime, compare quotes from a few companies to get an idea of your options. Remember to use the age, health, and other information of the person you want to insure.
Read Also:
Life insurance for someone else FAQ
Can I designate a beneficiary without that person knowing?
While you can't buy life insurance on someone without them knowing, you can designate a secret beneficiary. Some insurers require an address or Social Security number of the recipient, however, and it might be easier to tell your beneficiary why you want this information.
If you think you may be a secret beneficiary to a deceased person’s life insurance policy, you may be able to find out with the National Association of Insurance Commissioners policy locator.
