People often ask us, “Can I get life insurance on someone else?”, “Can I buy life insurance policy on family members?”, and “How can I purchase insurance for my parents?” – We answer these common questions in this article.
It is essential to purchase an insurance policy to protect our family financially when we pass away. It’s an affordable way to ensure our final expenses, income replacement, and mortgage payments are covered.
However, can you buy insurance coverage on someone else? Taking out an insurance policy on family member makes good sense in some situations.
There are many reasons to do this, mainly if that person provides for you financially and you will be left struggling financially when they die. Taking life insurance on this person will ensure you are also protected.
WHY DO YOU NEED TO BUY INSURANCE COVERAGE ON SOMEONE ELSE?
The primary reason for buying other people a life insurance policy is to help protect yourself financially in the event of their passing. One example is you can purchase coverage on your parents to help cover their final expenses when they pass away.
Other common examples include:
- Spouse and life partners buy insurance coverage on their better half.
- Parents buy insurance coverage for their children.
- Grandparents buy life insurance on their grandchildren.
- Employers buy insurance coverage for their key employees.
- Businesses buy insurance coverage on business partners.
- Banks and lending companies buy insurance coverage on their executives, also known as bank-owned or corporate-owned life insurance.
WHAT ARE THE REQUIREMENTS TO GET LIFE INSURANCE COVERAGE?
Buying insurance policy for other people, such as child, spouse, parents and business partner is possible as long as you have an insurable interest and consent from the insured.
Insurable interest means that you would be negatively affected financially when the insured dies. You cannot buy insurance coverage on a stranger because that person has no impact on your finances. If that person dies, you would not be financially affected.
Married couples can purchase insurance coverage on each other because their finances affect the other.
Being related to someone by blood or by marriage does not automatically mean you can buy insurance policy on them. To buy insurance coverage on anyone including your family members, you need to prove that their death would negatively impact your finances.
It is illegal for insurers to sell policies on people without insurable interest.
Insurable interest is required by law to ensure that the death of the insured does not create a personal gain on the policyholder. Allowing people to be able to own life insurance on just about anybody could lead to foul play for insurance payouts.
While buying an insurance policy for other people is possible and legal, there are some restrictions. You cannot buy a life insurance policy for a total stranger or anyone else without informing them. Somebody else cannot purchase a policy on you without your knowledge either.
In other words, consent is needed. They must be aware that you’re buying a insurance coverage on them and they agree with it. For this reason, the person being insured is required to sign a consent form with the application form.
WHY CAN’T I JUST BUY A POLICY ON SOMEONE ELSE?
It was at one time possible to buy life insurance in the past on someone without them knowing. However, it’s been outlawed around the country. The reason states outlawed stranger-owned life insurance (STOLI) is that the dangers of such policies are very real.
When someone buys insurance coverage on a stranger, he or she has a financial motive for that person to die. There are many instances of murder and strangers recruiting older adults as part of a scam.
The new rules and regulations make it nearly impossible to buy insurance coverage on someone without their consent because most insurance companies require medical exam and consent form. Even simplified issue and guaranteed issue policies without a medical exam require the signature of the insured.
The life insurance industry is heavily regulated. Having both insurable interest and consent makes it virtually impossible for anyone to take advantage of a family or insurance company by creating a fraudulent or criminal death claim. The insurance companies just won’t allow it to happen.
If someone was able to get a guaranteed issue policy without your permission, this would be a fraud. Insurance fraud is a felony, and you could end up in jail. The policy is voidable because it never should happen in the first place.
The only circumstance in which insurable interest and consent are not needed is when a parent applies to buy life insurance for their minor child.
You may also buy $1,000 to $5,000 of dependent coverage on your spouse or dependent children at work without their consent. More and more insurers are offering additional coverage amounts up to $50,000 on a spouse without their consent, signature or medical exam. Sometimes this is a guaranteed issue policy offered as Payroll deduction voluntary plan.
WHO ARE THE PEOPLE YOU CAN BUY LIFE INSURANCE ON?
- Spouse or life partner
- Divorced Spouse
- Elderly parents
- Business partners
- Key man
- Anyone whom you depend on financially
For Your Children
You don’t need consent to purchase insurance coverage for your child under the age of 18. You will only need their consent if your child is 18 years or older. You can purchase a permanent insurance policy on your children to lock in your child’s future insurability, and the policy starts accumulating cash value.
If anything happens to your child, you wouldn’t have to worry about how to pay for the final expenses and lost income while you take time off from your job to grieve.
The less expensive option is to add a child rider to your insurance policy when you buy one. The average cost of a child rider is about $50 per year for $10,000 of coverage, and it will cover each of your children under the age of 18.
A child rider locks-in future insurability. Once your children become older, you can convert the rider into a small permanent insurance policy without proving their insurability. By then, you can have the option to transfer the ownership to them.
Buying Life Insurance for Elderly Parents
Sons and daughters can purchase insurance coverage for their elderly parent or both parents. Adult children can buy a policy and become responsible for making payments instead of letting their parents struggle to pay the premium.
Children need insurable interest and parents’ consent to buy insurance coverage on them. Some insurable interests include:
- They would become responsible for any financial obligations when parents passed away.
- They rely on them financially.
- They cosigned on a loan together.
The type of insurance plan you can buy on your parents depends on the age of the insured.
Term life insurance is not available to all ages. You can only purchase term insurance if your parents are less than 75 years old. If your parents are over 75, you may need to buy a whole life insurance policy or guaranteed issue policy.
For Your Spouse
It’s natural to purchase an insurance coverage for a spouse, but you need insurable interest and their consent to buy insurance policy on them. Because most spouses share bank accounts and contribute to bills, insurable interest is apparent.
Buying life insurance for your spouse will ensure that they don’t go into debt after losing the income they are used to. The life insurance payout can also be used to pay for final expenses, pay the mortgage and pay for children’s education.
Most couples own life insurance on each other aside from their own policy. If your spouse owns a life insurance policy on you and you’re in the middle of a divorce, it will be on your best interest to negotiate a transfer of ownership.
For your Significant Other
If you’re unmarried but in a committed relationship, you can still purchase life insurance on each other. You just need to have insurable interest and consent to make a purchase. If you are engaged and living together, your partner’s death can have a financial impact on you. You can demonstrate insurable interest by proving your finances are joined.
Other insurable interest can include:
- Being engaged
- Having children
- Jointly owning a home or business
- Both of you are named on a lease
- Debts naming you both such as a car loan
When applying for life insurance on your significant other, use the title “partner” or “significant other” instead of “girlfriend” or “boyfriend.”
For Your Business Partners
Insurable interest also applies for business owners because you have a financial and business relationship.
The death of a partner or co-owner can be detrimental to business success – especially in small business. Life insurance can keep a company running in case a partner dies.
Business partners can take life insurance policies on each other when a business is formed. Life insurance on business partners and buy-sell agreements are common ways to reduce risk when owning a business. This legal document states what would happen if either partner passes away.
A buy-sell life insurance policy will help ensure that the company will be able to survive financially if one partner dies unexpectedly.
If the partner dies, the life insurance will pay the other partner. Typically the face amount is equal to each partner’s shares in the business.
The money will be used to pay off the heirs of the partner that died and keep the business moving forward in the control of the surviving partner.
For Your Key Man
A business may have a valuable employee that his death would have dire consequences for the company. It could be the CEO, top salesman, or someone with a unique skill set who would be very hard to replace.
The business can purchase a policy on the key man (employee or owner) because they have an insurable interest.
The company owns the insurance policy and pays the premium. It will also be the beneficiary on the policy. When the key man dies, the life insurance proceeds can be used by the business to recover from any financial setback caused by the death.
The business could also use the insurance payout to be able to offer a signing bonus to attract the best talent for that position.
For Anyone You Depend On
You could buy life insurance if you have people providing you the assistance that would impact you financially if you lost it. It could be all sorts of different people, and you may need to prove insurable interest in that person.
Maybe you have a successful son that pays your rent, or your ex-spouse is required to make child support payments to you. Many instances could apply here.
If you can prove that you will have financial difficulty resulting from the death of a particular person, and you can demonstrate insurable interest, you may be able to purchase a life insurance policy on that person.
HOW TO GET LIFE INSURANCE ON OTHERS
The process of purchasing a policy on someone else is simple:
- Make sure you have an insurable interest on the person you want to insure.
- Have the permission of the person you want to insure.
- Determine the death benefit amount you want to apply for.
- Learn the medical condition of the potential insured.
- Find a life insurance provider by completing the instant QUOTE on this page.
- Fill out an application for the insured.
- The person you want to insure will be contacted by the life insurance company to verify the information.
- The underwriter at the life insurance company will review the application to assess the overall risk of the person being insured.
For traditional life insurance, an applicant will have often have to provide the following information:
- Personal information
- Height and weight
- Overall health
- Medical history
- Other medical conditions
FINDING THE BEST LIFE INSURANCE
To find the best life insurance policy on someone else we recommend exploring life insurance from several providers. Not all life insurance providers’ asses risk the same way. One company may offer much better premiums than another. We can locate them for you.
Life Wealth Win works with more than 40 top-rated life insurance companies in the market. We can review multiple companies for you to get the best carrier and policy that meet your individual needs.
Do you still have questions on buying life insurance coverage for someone else? Call us at (888) 435-4342, and we will be happy to discuss your options.