Typically when we get the question “can I get life insurance on my siblings?” it’s usually because the person on the other line is worried about what would happen if their siblings die without life insurance. Who would pay for their funeral in the first place?
We usually purchase life insurance to financially protect our loved ones in the event of our death. Getting a life insurance policy is an affordable way to secure our family’s financial future. It is also affordable to buy life insurance on your siblings as long as you have insurable interest and consent.
Today, it’s becoming common for children to take life insurance policies on their siblings because they don’t want to be burdened with the final expenses when their brother or sister passes away. They realize that is much cheaper to invest in life insurance now than shoulder all the funeral bills later.
If you are considering to buy life insurance coverage for your siblings, but not sure how to do it, we can help. Call us at (888)862-9456, and we can work with you to determine the best plan for your brother or sister.
CAN I GET LIFE INSURANCE ON MY SIBLINGS?
Yes, you can get a life insurance policy on your brother or sister if several factors are met:
- Insurable Interest – You need to prove that there is an insurable interest between your brother or sister. Your relationship with the proposed insured is critical in showing that you have an insurable interest. A relationship based on blood may provide the basis for insurable interest. Insurable interest exists if you will experience financial loss when they die.
Insurable interest is required so that the death of the insured will not create personal gain for the policyholder. Allowing anyone to be able to own life insurance on anyone could possibly lead to intentional harm or even murder.
- Consent – Not only do you need to prove insurable interest to buy life insurance on your siblings, but you also need their permission. They need to agree that you will take out a life insurance policy on their life. It would be nearly impossible to buy life insurance on your siblings without them knowing it because most insurance companies will require their signature on the application for life insurance.
Life insurance companies must also access the insured’s medical history. According to HIPAA, the insured must sign a written consent form to access his medical records. If someone managed to take out life insurance on another person without their consent, this is insurance fraud and punishable by law.
WHY DO YOU NEED TO TAKE OUT LIFE INSURANCE COVERAGE ON YOUR SIBLINGS?
You need to take out life insurance on your siblings, a brother or sister if you depend on them for financial support. For example, you are permanently disabled, and your sister takes care of you. That is an insurable interest then, you can purchase life insurance on her life.
Your sibling has a handicap. Your brother or sister has health issues like autism, cerebral palsy or Down’s syndrome. Their death will leave you with the final expenses.
You may need to take out life insurance on your siblings if you are their legal guardian. Taking life insurance will provide money for funeral and other costs. Taking life insurance on your small brother or sister will lock in the child’s ability to qualify for more life insurance later.
If your sibling is unemployed without insurance, taking out a life insurance policy on them will not leave you with a financial burden when they pass away.
It is also wise to take out a life insurance policy on your sibling if he or she has no money saved for their final expenses; maybe they went bankrupt and left with no savings. Burial insurance can be purchased in this case.
If your sibling has a personal loan, then it is a good reason to take out a life insurance policy on them. Example, your sibling owes you money you loaned for their education, auto or home. With this in mind, taking life insurance on your sibling can make a sound financial sense to ensure any unpaid debts can be paid off.
If you are in business with your sibling, then life insurance may be purchased on their life for business purposes. Life insurance entered in this context can be used as part of a buy/sell agreement. When your sibling dies, you will be provided with the funds to buy out their half of the business. The death benefit payout will fund the buy/sell agreement.
Buying life insurance on your siblings can be affordable, depending on the type and amount of coverage, and the insurance carrier you choose to buy the policy. So, whether you are worried about covering funeral expenses, paying off your debts, or other financial obligations, we can help you get started with the plan that’s right for your sibling.
LIFE INSURANCE FOR SIBLINGS
When considering life insurance for your sibling, there are different types of life insurance policies to choose from. The primary types of life insurance in the market today are a term and permanent.
Term Life Insurance
Term life insurance is the type of life insurance that expires after a term, such as 10, 15, 20, or 30 years depending on the life insurance company and applicant’s age. Term life is the most affordable life insurance because it provides pure death protection only.
Term life insurance makes a good choice if your sibling is in good health. This policy type is not available to all ages. You can only purchase term life insurance for your sibling if he is less than 75 years old. If he is over 75, then you may need to buy a whole life insurance policy.
If your purpose for getting life insurance on your sibling is because of a debt that he needs to pay off in 10 years. Or maybe you both sign on a mortgage, and you want to put up a plan just in case something happens. You can consider getting a term life insurance. The only drawback is that it usually terminates at a later date, but most term insurance offers conversion to permanent coverage.
Whole Life Insurance
Whole life insurance is the basic form of permanent life insurance. It provides life insurance protection for the entire life of the insured. The insurance company cannot cancel the policy, so you don’t have to worry about your sibling losing coverage if their health worsens.
The death benefit will never decrease for any reason. The premium is guaranteed to never increase regardless of your siblings’ advancing age or health condition. You’ll never have to worry about the price increase.
Whole life insurance has a cash value component. The cash value is allowed to grow at a guaranteed rated of interest on a tax-deferred basis. This cash value is a good saving that can grow exponentially over time. Some whole life policies offer dividends, but these are not guaranteed.
The good thing about whole life insurance is that it never cancels as long as the premium is paid. You can take affordable term insurance out, and then maybe in 5 or 10 years, depending on the length of the term, convert it to a permanent policy like a whole life policy.
There is no medical exam required to qualify for a simplified issue policy. Your sibling will only have to answer some health questions. Simplified Issue policies are easier to obtain because there is no medical exam and relaxed medical underwriting. The policy can be approved quickly, usually 1-2 weeks.
The most significant benefit here is that there’s a limited look back on health condition with these policies. So let’s say your sister had breast cancer five years ago. Most simplified issue whole life insurance will only look back two or three years on cancer treatment. You can even get preferred rates, where other fully underwritten policies will be skeptical about cancer.
Even with other medical issues, getting a simplified issue policy on your sibling can have him potentially covered from day one. It depends on your sibling’s medical history issues.
Guaranteed Acceptance Whole Life
Guaranteed acceptance is a whole life policy that never expires. Your sibling can have the policy for life. This type of policy does not require a medical exam or health questions to qualify. Acceptance is guaranteed regardless of health condition.
If your sibling doesn’t want to undergo any medical exam, this is the way to go. Guaranteed acceptance policy is very easy to get, but it comes with a graded death benefit limitation.
Guaranteed acceptance has a two-year waiting period which means, if your sibling died during the waiting period, you would not receive the full death benefit. You will only get the return of premium plus 7% to 10% interest. You will get the total payout if your sibling dies after the two-year waiting period.
HOW TO APPLY FOR LIFE INSURANCE
Identify your purpose for getting a life insurance policy on your sibling. Knowing your goal will help you determine what type of life insurance policy is suitable for your need. Determine how much coverage you need for your sibling by adding your sibling’s debts and financial obligation plus the funeral and final expenses.
Once you have decided on the kind of policy and the amount of coverage you need, tell your sibling about your intention of getting life insurance on her or him. Find a life insurance company by completing the instant QUOTE form on this page.
If you decide to get a traditional life insurance policy, you will need to answer some health and lifestyle questions including:
- Basic personal information
- Medical history
- Prescription history
- Family health history
- Smoking status
- Habits and hobbies
- Foreign travel frequency
- Other life insurance policies in force and the amount of coverage
Traditional life insurance will require a medical exam or physical screening. The medical exam typically takes about 30 minutes. The paramedical professional will either go to your sibling’s place or other convenient location. The paramedic will take a blood and urine sample to test your sibling’s health status.
Sometimes, underwriters may request medical records from your sibling’s doctor for more details. Once the insurance carrier collected all the health information, the underwriters will then decide about your sibling’s life insurance policy, as well as the amount of premium.
If your sibling refused to take the medical exam, your brother or sister could go for a guaranteed acceptance policy. It is effortless to qualify for guaranteed acceptance, your brother or sister will get approved immediately once you submit the application.
THE RIGHT LIFE INSURANCE SET UP TO AVOID THE TAX TRAP
It’s crucial to set up your siblings’ life insurance policy appropriately because you can fall into a tax trap if your siblings’ life insurance policy is not handled carefully. Life insurance payout is usually tax-free unless the insured, the owner and the beneficiary are three different people. This case is called the Goodman Triangle.
The policy owner can be taxed on the life insurance benefit if the insured, owner and beneficiary are three different people.
The Insured – The insured is the person covered by the life insurance policy, his or her death will result in a death benefit payout.
The Owner – The policy owner is usually the one paying for the policy. He holds the rights to the life insurance contract. He can make changes to the policy such as change the beneficiary, add or delete riders, lower the death benefit, transfer ownership, and request a rating change for the insured.
If you are the owner of your siblings’ life insurance policy, you will need to submit proof of insurable interest.
The beneficiary – the beneficiary is the person designated to receive the life insurance benefit. Assign yourself to be the beneficiary to avoid the tax trap.
The Goodman Triangle can happen this way:
An older brother owns a life insurance policy on his younger brother. The owner named his daughter as the beneficiary. In the eyes of the IRS, the payout is viewed as a gift to his daughter, and it would be taxed accordingly. The older brother would be taxed on the gift he bestows on his daughter.
How to avoid the Goodman Triangle and the Tax Trap
The Goodman Triangle can be avoided by making the two points of the triangle the same person. In the example above, if the older brother is both the owner and the beneficiary, then the Goodman Triangle doesn’t exist.
Be careful when setting up your brother or sister’s policy to avoid the Goodman triangle and the tax trap that goes with it. Refrain from making the insured, owner and beneficiary three different people.
ALTERNATIVE WAYS TO GET COVERAGE ON YOUR SIBLINGS
Creating fraudulent documents to show insurable interest is a crime. Tying to obtain any type of life insurance on your siblings by forging documents or falsifying information is punishable by law. If you cannot show proof of insurable interest in your siblings, there are alternative ways to get life insurance on them.
If you are genuinely concern that you will experience financial loss when your sibling passes away, then it is easier if your brother would apply for his life insurance and he would make you the policy owner after some time. This way the premiums will be sure to be paid on time, and the life insurance will remain in force.
If you are in business with your brother or sister, their death would likely cause you financial hardship. You could get a key man life insurance on him or her.
HOW TO GET THE BEST RATES ON YOUR SIBLINGS’ POLICY
Comparing rates from many life insurance companies with the help of an independent agency is the only way to make sure you get the most affordable rates on your siblings’ life insurance policy.
Insurance rates may differ by hundreds of dollars per year from company to company, so it’s imperative to compare many quotes. Doing this will enable you to find the cheapest rates possible.
Work with an independent life insurance agency like Life Wealth Win that represents multiple A-rated insurance companies. We can provide you will different life insurance quotes in an instant by answering the instant quote form on this page. This way you will be able to compare prices and select the best policy for your life insurance needs.
If you have questions about getting life insurance for your siblings for yourself, call us at (888) 435-4342, and we will discuss your options.