How To Add A Person To Your Life Insurance Policy

Life insurance is a way to ensure that your loved ones are financially protected after you pass away. But can you add just anyone to your life insurance policy? The short answer is no. To add someone to your life insurance, you need to have what is called an insurable interest. This means that you would need to prove to an insurance provider that you would suffer financial harm if the person you aim to insure passes away. In other words, you must prove that you rely on that person financially and would be impacted by their absence. Additionally, the person being insured must consent to being added to the policy and be involved in the application process.

Spouse/partner

Yes, you can add your spouse or partner to your life insurance policy. This is a common practice, as spouses and partners often depend on each other financially and emotionally. In the event of the death of one spouse or partner, the other would suffer a significant financial loss, which is the main requirement for adding someone to your life insurance policy. This is known as having an "insurable interest" in the person.

If your spouse or partner is the primary breadwinner, their passing would result in a substantial financial blow. Purchasing life insurance to cover such a contribution is a natural protective step. Even if your spouse or partner is not the primary breadwinner, their contributions to the household, such as caregiving, housework, cooking, and errands, have significant value. For example, a 2019 survey found that stay-at-home parents would earn nearly $178,2000 per year in the workplace.

It's important to note that the person being added to the life insurance policy must consent and be involved in the application process. They will have to go through the underwriting process, which includes answering questions and, in most cases, taking a medical exam. Additionally, the amount of insurance should be commensurate with the financial loss that would be incurred in the event of the person's death. For example, if your spouse or partner has a $180,000 mortgage, a $200,000 policy to cover the mortgage debt and funeral expenses would be reasonable, while a $5 million policy would be excessive.

In summary, adding your spouse or partner to your life insurance policy is a practical way to protect yourself and your loved ones financially in the event of their death. It's essential to ensure that you have their consent and that the amount of insurance is appropriate for your situation.

Business partner

As a business owner, it is important to have both key person and personal life insurance to protect your company and your family. Co-owners should have buy-sell agreements in place, which should include life insurance.

There are two main types of buy-sell agreements: cross-purchase agreements and entity purchase plans. In a cross-purchase agreement, each partner purchases life insurance for the other partners and names themselves as the beneficiary. This is the most popular way of funding a buy-sell agreement. If something happens to one of the partners, the life insurance proceeds are used to buy up that partner's equity from their family.

An entity purchase plan, on the other hand, is when the business buys a life insurance policy on each owner and uses the death benefit to purchase their shares if one of them passes away. This may have the additional benefit of being a tax deduction.

Key person life insurance is a specific type of company-owned life insurance designed to keep a business afloat if the owner or another important employee passes away. The business typically pays the insurance premiums and is the beneficiary of the life insurance policy. The death benefit can be used for business loans or losses, buying back the deceased's shares in the business, covering the cost of replacing the employee, or severance for staff if the business closes.

It is recommended that business partners have a conversation with their financial advisor or attorney to help protect themselves and their business.

Child

Yes, you can add your child to your life insurance policy. Many insurance companies allow parents to add what is called a child life insurance rider to their insurance policy. This rider typically provides a small amount of term life insurance on a child. You can get a rider for a child, stepchild, or adopted child who is at least 14 or 15 days old, and up to age 18 or 19. The rider will pay a death benefit to the parent if the child were to die before a certain age. Typically, these riders provide coverage until a child is age 22 or 25 or until marriage, whichever comes first.

Adding a child rider to your life insurance policy can offer several benefits, including:

• Low cost: The cost of adding a child rider is relatively low, typically around $5 to $7 per $1,000 of coverage per year.
• Eliminating the burden of paying for final costs: While the chances of a child dying are very low, a child rider can help cover the financial burden of final expenses, such as funeral and burial costs.
• Guaranteeing a child's insurability: A child rider can be converted to a permanent life insurance policy when the term is up, without medical underwriting. This can be beneficial if the child develops medical issues that would make it difficult to get their own life insurance coverage as an adult.

However, there are also some drawbacks to consider before adding a child rider to your life insurance policy. These limitations include:

• Limited coverage: The coverage amount for a child rider is usually limited to $25,000 or less per child, which may not be sufficient to cover all final expenses and outstanding medical bills.
• Premature termination of coverage: The rider may terminate before the child reaches the maximum age for coverage if the parent reaches a certain age, typically 55 or 65.
• Limited conversion amounts: If the child wants to convert the term rider to their own policy, the coverage amount may be limited, typically to $25,000 or less.
• Expensive conversion to a permanent policy: Converting a term rider to a permanent policy may be more expensive than purchasing a new policy, as the new policy will likely be issued at a standard risk class rather than a preferred or super-preferred rate.

It's important to carefully consider the pros and cons of adding a child rider to your life insurance policy before making a decision. It may be a good option if you want to ensure your child's future insurability or cover final expenses in the unlikely event of their death. However, if you're primarily interested in saving for your child's future, there may be other investment options that offer higher returns.

Parent

Yes, you can add your parents to your life insurance policy. However, there are a few steps you need to follow to do this. Here is a guide for parents specifically:

Firstly, you need to get your parents' consent. They will need to sign the application and may need to provide information on how their death would financially impact you. This is because you must prove that you have what is known as an "insurable interest" in your parents. This means that you are financially dependent on them and would suffer financial losses if they were to pass away.

Secondly, you need to figure out their coverage needs. You can do this by assessing any debts and income goals for the family. This will help you determine how much life insurance coverage you will need.

Thirdly, choose a life insurance policy and company that suits your needs. There are different types of life insurance policies available, such as term, whole, and final expense life insurance. Do your research to find the best option for your family.

Next, fill out an application for the life insurance policy. The insurance company may ask for detailed personal, health, and financial information from your parents. Be prepared for this step and make sure your parents are aware of what is required of them.

Finally, get approved and start paying the premiums. Once the insurance company has approved the plan, you will need to make regular premium payments to keep the policy active.

It is important to note that you cannot take out a life insurance policy on your parents without their knowledge and consent. They must be involved in the process and agree to being insured. Additionally, you should consider the financial implications of taking out a life insurance policy on your parents and whether it is the best option for your family.

Co-signer

A co-signer is not the same as a co-borrower. A co-signer is only responsible for financial matters related to the loan and is not required to be on the auto insurance policy. However, if the co-signer is also a co-owner of the vehicle, they are placed on the car's title and may be held legally responsible in the event of an accident. In this case, it is advisable to be listed as an additional driver on the insurance policy.

As a co-signer, you are not liable for any accidents or damages caused by the primary borrower. Your responsibility is to ensure that the loan is paid if the primary borrower defaults on their payments. Beyond this, a co-signer is not responsible for car insurance, registration, or any other processes involving the vehicle.

However, it is important to note that a co-signer may be held accountable if the primary policyholder does not correctly insure the vehicle. As a co-signer, you have vicarious liability, so it is essential to ensure that the primary borrower has the required insurance coverage. You can request to be listed as an additional insured on the policy, so you are notified of any policy changes or cancellations.

While co-signing a loan will likely not affect your insurance rates, there are exceptions. If you live with the primary borrower and are already on the same insurance policy, adding the co-signed vehicle will increase your premium. Additionally, if you plan to drive the co-signed vehicle regularly, you should be added to the insurance policy to avoid liability issues.

In summary, while a co-signer is generally not required to be on the auto insurance policy, there are certain circumstances where it is recommended or necessary. These include when the co-signer is also a co-owner of the vehicle or when they are a regular driver of the co-signed car.

Frequently asked questions