Most people are motivated to buy life insurance to provide some financial protection for their loved ones. Typically, you would purchase a life insurance policy to cover your own life, and name a dependent as your beneficiary.
But what if you are looking to take out life insurance on someone other than yourself?Can you take out a life insurance policy for anyone you want?
Not exactly. You can’t just go out and buy life insurance coverage for any random person of your choosing. You can, however, purchase life insurance on someone else if certain conditions are met.
Who Can You Take Out a Life Insurance Policy On?
If you want to buy life insurance on someone else, two things are necessary: demonstrated insurable interest in their life and their consent.
What Is Insurable Interest?
There must always be a valid financial reason for taking out life insurance on someone else. If another person’s death would cause financial hardship, that is an insurable interest in their life.
Here are some examples of people that might provide some financial support in your life:
- Spouse or domestic partner: If your life partner is the primary income earner, you would likely suffer a financial loss if they were to pass away. Likewise, if your partner is a stay-at-home parent, their death would cause a financial hardship because you would need to pay for childcare, transportation, meal planning, house cleaning, and all the many other duties stay-at-home-parents take on.
- Former Spouse: If you receive alimony or child support payments, you likely have an insurable interest in your former spouse’s life.
- Parent: Sure, if mom or dad are paying any of your bills, providing a place to live, or covering some tuition payments, that could be considered insurable interest. More commonly, adult children buy life insurance on an aging parent because they are financially responsible for their parent’s final expenses and funeral services.
- Adult child: At some point in life, the caretaking role could switch. If your adult child provides financial support for you, you may be able to buy life insurance on them.
- Minor child. Life insurance policies for children are typically permanent, and many have a cash value component that could build in value over time.
- Grandparent: If your grandparent provides financial support for you or you anticipate being responsible for their funeral expenses, you may be able to buy life insurance on them.
- Business partner: If you have a business partner, life insurance can help with business continuation. Your business partner could use the death benefit to keep the business afloat or even buy out your estate.
Do You Need Consent to Take Out Life Insurance on Someone Else?
Taking out life insurance on someone else does require that person’s consent. If you buy life insurance coverage on another person, they will need to be involved in the application and underwriting process — and they will be required to sign the application.
However, there is one exception to the signature rule. If you are the legal guardian or parent, you can typically buy life insurance on your child without their signature.
Why Do Insurance Companies Require Proof of Insurance Interest and Consent?
While doing otherwise might result in some interesting mystery novel plotlines, requiring consent and proof of insurable interest to take out life insurance on someone else protects people and helps ensure life insurance policies are purchased for the right reasons.
How Do You Take Out Life Insurance on Another Person?
Let’s review. Can you take out a life insurance policy for anyone? Anyone, no. Someone you have an insurable interest, yes. Once you have determined that you’re shopping for life insurance on someone you have an insurable interest in, you can follow these four steps.
Ask permission.
Since you need consent to apply for life insurance on someone else, it’s a good idea to start by asking them if they are comfortable with your decision. Then, share your reasons for believing a life insurance policy is essential. Let them know that you will need them to answer some medical and lifestyle questions and possibly undergo a medical exam.
Determine the type of life insurance you want to buy.
Life insurance typically falls into two categories, term life insurance, and permanent life insurance. Term life insurance is the most budget-friendly option, and you can purchase a policy with a term of ten to thirty years.
Permanent life insurance policies, typically whole life or universal life, can be active for life, as long as you make your premium payment. Additionally, most permanent policies can potentially build cash value over time.
Shop around.
Life insurance is an open market. You can choose an insurance company and life insurance type. There are different methods of applying for insurance, traditional (medical exam, interview, waiting period) and online (no medical exam, questionnaire, quick decision). Something good to know — many insurance companies offer free quotes on their website to give you an idea of your rate before applying for a life insurance policy.
Demonstrate insurable interest.
In many cases, it is easy to prove that you have financial connections with the person you want to insure. For instance, you might be able to demonstrate an insurable interest in a spouse or parent with a joint bank statement or history of medical bills. When it comes to other relationships, such as a sibling or business partner, your insurer may request additional information.
When Should You Buy Life Insurance on Someone Else?
Here are some situations that could result in buying life insurance for another person:
- You and your spouse could decide that you need additional life insurance coverage to help protect your mortgage should one of you pass away.
- As your parents age, you may find that you aren’t financially prepared to cover the cost of their financial expenses.
- If you own a company, you may have a business partner or top executive whose death would cause your business a loss.
If someone contributes to your life financially and their death would create a loss of income for you, you may want to look into buying a life insurance policy to cover them. Buying life insurance on someone else is a great subject to discuss with a financial advisor or insurance agent.
How Do You Suggest That Someone Else Buy Life Insurance?
If buying life insurance on someone else doesn’t seem like the right solution, but you still have financial concerns over what would happen if that person were to pass away, you might consider talking with them about life insurance. You can share some of the ways a life insurance policy can help provide some financial protection for the people who depend on them. If someone passes away insured, their beneficiary could use the death benefit to help pay for their funeral, cover a mortgage, or help send their kids to college.Term life insurance rates start from just $11 per month with Bestow. That’s less than most people’s coffee budget. The Bestow application is 100% online, and there is no medical exam whatsoever — just answer a few lifestyle, health, and medical questions. Learn more about how much coverage you might need, and then get a free quote to see what your premium rate could be.
Key Takeaways
- You can take out life insurance on someone else, but that person must consent to the purchase.
- In addition to getting the insured’s permission, the insurance company will require you to demonstrate an insurable interest on their life to purchase a policy on their behalf.
- Domestic partners, ex-spouses, aging parents, and business partners are examples of people who you might be able to cover with a life insurance policy.
Note: Life insurance through Bestow is available to policyholders only.
