Who Can Insure Whom? Understanding Life Insurance Policies

Life insurance is meant to provide a safety net for those who depend on another person financially. If you want to purchase a life insurance policy for someone else, you must prove to the insurance company that you would face a significant financial hardship in the event of the insured person's death. You also need to get consent from the insured person. So while it's possible to take out life insurance on someone else, it can't be just anyone.

You must have the consent of the person you want to insure

To take out a life insurance policy on someone, you must have their consent. The person being insured must be involved in the application process and will have to go through the underwriting process, which involves answering questions and, in most cases, taking a life insurance medical exam. They will also have to sign the application. The exception to this rule is if you're buying life insurance for a child.

The person the life insurance policy is for must be present for every step of the application process. They will need to sign a consent form and are likely to undergo a medical exam before the policy is approved. Phone interviews between the person being insured and the carrier are also common as a means of confirming that the insured is comfortable with the policy and to confirm information on the application. Even if a policy that doesn’t require a phone interview or medical exam is selected, failing to obtain consent from the person being insured would likely be considered insurance fraud.

The only time consent is not required is when the policy is being taken out for a child. In this case, the parent, grandparent, or legal guardian can buy a life insurance policy for their child without the child's consent.

You must prove to the insurance company that you would face financial hardship if the insured person dies

To take out a life insurance policy on someone, you must be able to prove that their death would cause you financial hardship. This is known as "insurable interest". Insurable interest is a requirement for all insurance policies and is used by insurance companies to ensure that life insurance is used properly. Without it, a policy can be voided or denied.

Insurable interest can be demonstrated in several ways. Firstly, you can prove that you have a financial stake in the person's life. This could be because you rely on their income, or because you have joint financial obligations, such as a mortgage or child tuition fees. Secondly, you can prove that you have a relationship with the person that would result in financial loss upon their death. This could include spousal relationships, parent-child relationships, business relationships, or creditor-debtor relationships.

In some cases, you may also need to prove that you have the person's consent to take out a life insurance policy on them. This is especially important if the person is not a direct relative, as insurance companies will want to confirm that the policy is being used for legitimate purposes. Obtaining consent is also crucial in ensuring that the policy is valid and enforceable. Without the insured person's knowledge and consent, the policy may be considered insurance fraud.

It's important to note that you cannot take out a life insurance policy on just anyone. Insurable interest must exist, and the relationship must pass the "insurable interest" test. This test confirms that the insured person's death would result in financial or other hardships for the policyholder. The insurance company will typically investigate the relationship between the policyholder and the insured person to make this determination.

Overall, proving financial hardship or insurable interest is a crucial step in taking out a life insurance policy on someone else. It ensures that the policy is used appropriately and provides financial protection for those who depend on the insured person.

You can't take out a life insurance policy on a stranger or casual acquaintance

Life insurance is meant to provide a safety net for those who depend on another person financially. If the insured person dies, life insurance can pay out benefits that cover end-of-life expenses like a funeral, as well as ongoing expenses such as a mortgage or tuition, so their loved ones aren’t burdened by the costs.

To take out a life insurance policy on someone, you must have their consent and prove that their death would cause you financial hardship or loss. This is called having an "insurable interest" in that person. Insurable interest can be demonstrated in several ways, such as:

• Spouses and partners: If you share finances with a partner, it often makes sense for each spouse to have a separate life insurance policy. One spouse may be the breadwinner, and the other may have no income to pay for a policy. In this case, the breadwinner may want to be the policy owner and take out a policy on their spouse.
• Business partners: It is common for business partners to have a buy-sell agreement that stipulates what happens to the business if something happens to either of them. Life insurance can be used to fund this agreement if one of the partners dies.
• Key employees: If you own a business, you can buy what is known as key person or key employee insurance to insure an employee who contributes significantly to the business.
• Parents: If you rely on your parents for financial support or may be responsible for their final expenses, it may make sense to help them get a life insurance plan. Some life insurance plans can also help cover funeral costs.
• Children: The reasons for taking out a life insurance policy on a child are different. You can help your child get life insurance early in life if they have a known health issue or are at risk of developing one. This guarantees insurability in the future.

However, it is important to note that you cannot take out a life insurance policy on just anyone. You must have an insurable interest in the person and their consent. This means that you cannot take out a life insurance policy on a stranger or casual acquaintance. The insured person must be involved in the application process and will have to go through the underwriting process, which involves answering questions and, in most cases, taking a life insurance medical exam.

You can't buy a life insurance policy for a child without being their parent, grandparent or legal guardian

You cannot buy a life insurance policy for a child without being their parent, grandparent, or legal guardian. This is because, in order to take out a life insurance policy on someone, you need to have what is called an "insurable interest" in their life. In other words, you must be able to prove that you rely on them financially and would suffer a significant financial loss if they were to pass away.

In the case of a child, the people who are most likely to have insurable interest are their parents, grandparents, or legal guardians. These are the people who are typically responsible for a child's financial support and care. If the child were to pass away, these individuals would be the ones most likely to suffer a financial loss, whether it be from funeral costs, end-of-life medical expenses, or other financial obligations.

Additionally, it is important to note that the person being insured must also consent to the life insurance policy and be present for every step of the application process. This means that, even if someone other than the parent, grandparent, or legal guardian believes they have insurable interest in a child, they would still need the child's consent and involvement to take out a policy on them.

Furthermore, there are different types of life insurance policies available, such as term life insurance and whole life insurance, each with its own advantages and disadvantages. When considering a life insurance policy for a child, it is essential to carefully review the options and choose the one that best suits the family's needs.

You can't buy a policy for a parent without their consent

Life insurance is meant to provide a safety net for those who depend on another person financially. If the insured person dies, life insurance can pay out benefits that cover end-of-life expenses like a funeral, as well as ongoing expenses such as a mortgage or tuition, so their loved ones aren’t burdened by the costs.

In the case of wanting to purchase a life insurance policy for a parent, it is not possible to do so without their consent. The insured person must provide consent and a signature, so there is no way to take out a policy on anyone without their knowledge. Forging a signature will void the life insurance policy and is also a punishable crime.

In addition to consent, the insured person's signature, and their knowledge, you will need some of their information to take out a life insurance policy on a parent. This includes their Social Security number, name, and address. Depending on the type of policy, the insured person may also need to take a medical exam and provide information about their health, such as height, weight, lifestyle habits, and medical history.

The person purchasing the life insurance policy for their parent will also need to prove they have an "insurable interest". This means that the purchaser will need to prove that they will be financially impacted by the insured person's death. For example, if the purchaser relies on income from the insured person to pay rent, or if the insured person has a mortgage or medical bills that will need to be paid after they're gone.

While it is not possible to purchase a life insurance policy for a parent without their consent, it is possible for parents to take out a life insurance policy themselves and name their child as the beneficiary.

Frequently asked questions