Insuring Another Person's Life: Is It Possible?

In the UK, you can get life insurance for someone else in certain situations. This is called having an 'insurable interest' in that person. To get insurance for someone else, you need to prove that you would suffer a financial loss if they died. For example, if they owe you a large sum of money that you would not be repaid, or if you are in a business relationship with them and would suffer financially if they died. You can also get life insurance for a spouse or civil partner without needing to prove insurable interest. However, if you want to be the sole owner of the policy, you will need to contact a financial advisor. It is also possible to get life insurance for a child if you are their parent, grandparent or legal guardian.

Insurable interest: Proving financial loss

Insurable interest is a fundamental insurance principle that requires the policyholder to have a legitimate financial stake or interest in the insured individual. This ensures that policies are taken out for legitimate financial protection rather than speculative or unethical purposes. In the context of a life insurance policy, it involves demonstrating a legitimate financial interest or connection to the insured individual.

• Family relationship: If the insurable interest is based on a family relationship, such as between a spouse or child, providing evidence of the family relationship, such as marriage certificates or birth certificates, may be required.
• Financial dependency: If the insurable interest is rooted in financial dependency, documentation of the financial connection, such as financial statements, tax records, or other proof of dependency, may be necessary.
• Business partnership: In the case of business partners, documentation of the business organisation, the role of the insured person within the business, and the financial implications of their death on the business may be required.
• Creditor-debtor relationship: Creditors seeking insurance on a debtor may need to provide evidence of the debt and their financial interest in the insured individual's life, such as loan agreements or financial contracts.
• Legal requirements: In cases where insurable interest is mandated by law, such as court-ordered life insurance for alimony or child support, the relevant legal documents and court orders may serve as proof.

It is important to work closely with an insurance company during the application process to understand their specific requirements for proving insurable interest. Providing accurate and comprehensive documentation is essential to ensure the policy is issued and that any future claims are valid. Failure to prove insurable interest can result in the denial of a life insurance claim or the invalidation of the insurance contract.

Consent from the insured

The insured person must be willing to cooperate throughout the application process, even if someone else is paying for the policy. This typically includes agreeing to a medical exam as well as answering application questions themselves. If they are unwilling to participate in any step, a policy cannot be taken out on them.

Spouse/civil partner

If you are married or in a civil partnership, you can insure each other without having to prove insurable interest. In the UK, you can get two separate policies or a joint life insurance policy. In the latter case, the money will go to the surviving partner.

However, if you want to be the only owner of a life insurance policy on your spouse, you will need to consult a financial advisor.

If you are insuring an ex-spouse or civil partner, then insurable interest will be required. Any policies you had before you separated can be kept unless you cancel them.

In community property states, the policyholder's spouse is automatically considered the beneficiary. In these states, the policyholder must receive the spouse's permission to list anyone else as the beneficiary.

Parents

As a parent, you can buy life insurance for your children, either as a standalone whole life policy or as an add-on to your own policy. This is known as Children's Cover or Children's Life Insurance. This type of insurance provides a fixed death benefit to the beneficiary if the insured child dies while covered and can also be used as a long-term savings mechanism, as it typically includes a cash value component that grows over time.

There are several benefits to purchasing life insurance for your children. Firstly, it can provide financial protection in the event of your child's death, covering final expenses such as funeral costs. Secondly, it can make it easier and more affordable for your child to maintain life insurance later in life, especially if they choose a high-risk career or have medical issues. Additionally, the cash value of a children's life insurance policy grows tax-deferred, meaning you won't pay taxes on gains until withdrawal. However, it's important to consider the potential disadvantages, such as low coverage amounts that may not meet your child's future needs and the possibility that your money could be better invested elsewhere.

When considering life insurance for your children, it's essential to weigh the pros and cons and consult a licensed financial planner to determine the best option for your family.

On the other hand, as a parent, you may also be wondering if your children can take out life insurance policies on you. The answer is yes, but with certain conditions. Your child will need to prove that they have an "insurable interest", meaning they would suffer a financial loss if you were to pass away. For example, if they rely on your financial support or would be responsible for any debts or end-of-life expenses. Additionally, your consent and signature are required for your child to take out a policy on your life. It's important to discuss this sensitive topic openly with your family and seek guidance from a financial advisor to ensure you make the right decisions for your unique circumstances.

Siblings

Yes, it is possible to take out a life insurance policy on your sibling. However, there are a few conditions that must be met.

Firstly, you must be able to prove that you have a financial connection with your sibling. This is known as 'insurable interest' and is a valid financial reason that you would suffer a loss if your sibling died. For example, if you have shared debt, assets, or bills, or if you own a business together. Without this, you cannot take out a life insurance policy on your sibling.

Secondly, your sibling must consent to the policy. They must be willing to cooperate throughout the application process, including agreeing to a medical exam and answering application questions. If they are unwilling to participate, you will not be able to take out a policy on them.

If you are considering taking out a life insurance policy on your sibling, it is recommended that you speak to a financial advisor first as there may be tax implications.

Frequently asked questions