How To Secure Life Insurance For Your Partner

Yes, you can get life insurance for your partner, but only if you have their consent and can prove insurable interest. Insurable interest means that you would face financial hardship if your partner were to pass away. For example, if you depend on your partner's income for essentials like rent or bills, then their death would significantly impact your finances. Married couples automatically qualify for insurable interest, but unmarried couples may need to provide proof through documents such as a lease with both names on it, joint ownership of a home or business, or shared debts. It is illegal to take out a life insurance policy on your spouse without their knowledge.

Consent and insurable interest

Consent:

Obtaining your partner's consent is essential when considering life insurance. Both parties must agree and be aware of the decision. The person being insured needs to be involved in the entire application process and sign the necessary forms. Their participation demonstrates their consent and willingness to undergo any required medical examinations or phone interviews with the insurance company. Without explicit consent, it is not possible to buy life insurance for your partner.

Insurable Interest:

Insurable interest is a fundamental concept in life insurance. It refers to a situation where one person would face financial hardship if the insured person were to pass away. In other words, you need to prove to the insurance provider that you rely on your partner financially and that their death would significantly impact your financial stability. Insurable interest can be established through various ways, such as:

• Being named on a lease together
• Joint ownership of a home or business
• Shared debts or loans
• Having children together
• Financial dependence on each other

Insurable interest is typically recognised in specific family relationships without the need for extensive financial proof. These relationships include spouses, parents/children, and grandparents/grandchildren. However, for other relationships like stepparents/stepchildren, proof of financial dependence may be necessary.

In the context of life insurance, insurable interest ensures that policies serve their intended purpose of providing financial security rather than creating incentives for harm. It is a precautionary measure to prevent wagering, homicide, or other moral hazards associated with insurance fraud. Therefore, both consent and insurable interest are essential when considering life insurance for your partner.

Types of life insurance

Yes, you can get life insurance for your partner, but only if you have their consent and insurable interest. Insurable interest means that you would face financial hardship if your partner were to pass away. In other words, if you depend on your partner's income for essentials like paying rent or bills, then their death would significantly impact your finances.

Now, here is an overview of the types of life insurance:

Term Life Insurance

Term life insurance is typically sold in lengths of one, five, 10, 15, 20, 25, or 30 years. It is a simple, low-cost policy that aims to replace your income when you die. It is often the cheapest life insurance option and is sufficient for most people. However, if you outlive your policy, your beneficiaries won't receive a payout.

Whole Life Insurance

Whole life insurance usually lasts your entire life, as long as you keep up with the premiums. It includes a savings component that a portion of your premium will pay into. Whole life insurance policies typically cost more than term life policies with similar coverage amounts due to the savings component. This type of insurance is best for those who want a straightforward permanent policy and can afford the higher premiums.

Universal Life Insurance

Universal life insurance is a permanent life insurance option that allows you to adjust your premiums (within limits) and has a cash value component that grows based on market interest rates. It is more affordable than whole life insurance and can adapt to your needs as they change. However, the death benefit and cash value growth are not guaranteed.

Variable Life Insurance

Variable life insurance is a type of permanent life insurance tied to investment accounts such as bonds and mutual funds. It gives you greater control over your cash value investments but requires you to be hands-on in managing your policy because the cash value can change daily based on the market. There is potential for considerable gains if your investment choices perform well, but there is also a higher risk.

Burial Insurance or Final Expense Insurance

Also known as final expense insurance, burial insurance is a small whole life insurance policy that helps your family pay for funeral, burial, and other end-of-life expenses after your death. It typically doesn't require a medical exam, making it more accessible to seniors with pre-existing health conditions. However, coverage amounts are capped at relatively low amounts.

In addition to these main types of life insurance, there are also other variations, such as group life insurance offered by employers, mortgage life insurance, credit life insurance, accidental death and dismemberment insurance, and joint life insurance.

Naming your beneficiary

The person or entity you legally designate to receive the benefits from your financial products, such as the death benefit from your life insurance policy, is known as the beneficiary. It is a crucial step in owning a life insurance policy, as the beneficiary is probably the reason you have life insurance in the first place.

Primary and contingent beneficiaries

There are two types of beneficiaries: primary and contingent. A primary beneficiary is the person (or persons) first in line to receive the death benefit from your life insurance policy. Typically, this is your spouse, children, or other family members. In the event your primary beneficiary dies before or at the same time as you, most policies also allow you to name at least one backup beneficiary, called a "secondary" or "contingent" beneficiary. If the primary beneficiaries are all deceased, the secondary beneficiaries receive the death benefit.

Naming multiple beneficiaries

You can name multiple beneficiaries and assign a percentage of the benefits from the policy to each beneficiary. For instance, if your parents co-signed on your student loans, you might leave them money to cover your remaining balance. Or if you want to leave money to your siblings, a beloved charity, or anyone else who might be impacted by your loss, you can do so.

Irrevocable vs. revocable beneficiaries

An irrevocable life insurance beneficiary designation cannot be changed without the beneficiary's approval. For this reason, irrevocable designations aren't common. However, they can be useful if you want to ensure that the death benefit reaches a specific person, such as your child. On the other hand, a revocable life insurance beneficiary designation is flexible and can be changed, updated, or removed at any time.

Choosing a life insurance beneficiary

This decision isn't always a simple one. The right choice may not be the most obvious one. Start by asking yourself why you have life insurance in the first place: who relies on you financially and would need help paying ongoing bills if you die? Who would need financial support to cover costs incurred by your death, such as funeral expenses? Who would you like to leave money to regardless of whether they rely on you, such as a charity or a trust for your children?

Naming children as beneficiaries

Naming your children as life insurance beneficiaries might seem like a sensible decision. But if you die while they're still minors, the payout can be complicated. Many states allow legal guardians to receive payouts on behalf of minors. You can appoint a legal guardian prior to your death, or the guardian can petition for rights after you die. In either case, the state must grant the guardian legal rights to manage the child's finances. Appointing a guardian can be a lengthy and expensive process, so consult a lawyer before proceeding.

Naming your estate as your beneficiary

Although life insurance proceeds are typically not taxable, the payout may be subject to estate tax if left as part of a large inheritance. Even if you have a will, your estate—including the death benefit—can get held up in probate court, delaying the payout and costing your estate money. If you name a specific beneficiary on your life insurance policy instead, the funds go directly to the beneficiary without being wrapped up in your estate.

Changing, adding, and removing beneficiaries

You can typically change, add, or remove revocable life insurance beneficiaries at any time. The methods to do so vary among insurers. Some companies may require a change of beneficiary form signed by a witness, while others allow you to update your beneficiary online. It is important to reassess your life insurance beneficiaries after major life changes to ensure the right people are protected.

If you have children

When taking out a life insurance policy for your partner, you will need to prove insurable interest. This means that you would face financial hardship if your partner were to pass away. For married couples, this is usually straightforward to prove as you likely share a home, expenses, and are raising children together. However, for unmarried couples, it may be more difficult to establish insurable interest. In this case, you may need to provide proof such as a lease with both of your names, joint ownership of a home or business, or shared debts.

It is important to note that you cannot take out a life insurance policy on your partner without their consent. They must be involved in the application process, go through the underwriting process, and sign the application. Additionally, it is illegal to take out a life insurance policy on your spouse without their knowledge.

When deciding on the amount of coverage for your life insurance policy, consider your financial contributions and how things would change if one of you were no longer able to provide financial support. Insurance experts advise that policy coverages should amount to five to ten times your pre-tax annual income.

In addition to individual policies, there are also joint life insurance policies that cover both spouses under one policy. However, these policies are usually more expensive and are not recommended for most couples. Instead, it is typically more cost-effective for each spouse to have their own separate policy.

If you're in a domestic partnership

Firstly, you'll need to prove insurable interest, which means demonstrating that you would suffer financially if your partner were to pass away. This can be more difficult for unmarried couples, but it's not impossible. You can prove insurable interest by showing that you share a lease, own a home or business together, or have shared debts or children. The more evidence you can provide of your financial dependence on one another, the stronger your case will be.

Secondly, you'll need consent from your partner. They will need to be involved in the application process, including answering questions and possibly undergoing a medical exam. This is a crucial step, as it is illegal to take out a life insurance policy on your partner without their knowledge.

It's worth noting that buying separate life insurance policies for each partner is often easier and cheaper than buying a joint policy. Additionally, insurance experts advise that policy coverages should amount to five to ten times your pre-tax annual income.

Finally, consider seeking advice from a qualified life insurance agent or financial advisor to ensure you're getting the best coverage for your specific situation.

Frequently asked questions