Leaving Life Insurance To Yourself: Is It Possible?

Life insurance is meant to provide financial support to beneficiaries after the policyholder's death. While it is possible to take out a life insurance policy on someone else, there are certain conditions that must be met. These include having an insurable interest, which means being able to prove a financial stake in the continued life of the insured, and obtaining their consent. The process of obtaining consent can be beneficial as it may reveal information that can help determine the size of the policy needed. Additionally, the type of policy, such as term or permanent life insurance, and the associated costs should be considered. It is also important to note that employer-sponsored life insurance policies may not follow you when you change jobs, so it is recommended to have additional independent coverage.

You can't take out a life insurance policy on just anyone

Life insurance is meant to provide financial support to someone who may need it after you pass away. Therefore, you can't purchase a policy on just anyone. For example, you can't buy a policy on a celebrity or public figure that benefits you if they die.

To take out a life insurance policy on someone other than yourself, you must have a financial stake in their life. This means that you depend on the person financially, and their death would result in a financial loss for you. This is known as having an "insurable interest".

Additionally, the person being insured must consent to the policy. They must be aware of and agree to the decision to take out a life insurance policy on them.

• Spouse or life partner: If you rely on your spouse or life partner financially, you may be able to take out a life insurance policy on them.
• Business partner: If you have a business partner and their sudden passing would leave your business in a difficult position, you may be able to take out a life insurance policy on them.
• Parents: If you rely on your parents for financial support or may be responsible for their final expenses, you may be able to take out a life insurance policy on them.
• Child: If your child has a known health issue or is at risk of developing one, you may want to consider taking out a life insurance policy on them to guarantee their insurability in the future.

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

It is important to note that you cannot take out life insurance on just anyone. To take out a life insurance policy on someone other than yourself, you must have a financial stake in their life. This means that you rely on the person financially and that their death would result in a financial loss for you. For example, you may be financially dependent on your spouse or a parent, or you may share a loan with a business partner.

In addition to having an insurable interest, you must also obtain the consent of the person you want to insure. This means that the person must be aware of and amenable to the policy. They must sign off on allowing you to buy the policy for them and will need to sign a consent form. The person being insured will also likely need to undergo a medical exam and provide personal information such as their height, weight, lifestyle habits, and medical history. Obtaining their consent can be beneficial, as it may turn up information that is helpful in deciding the size of the policy you need.

It is important to note that failing to obtain consent from the person you are insuring would likely be considered insurance fraud. Additionally, a policy that is taken out without the knowledge of the insured person is not allowed.

You must prove you have an insurable interest

To take out a life insurance policy on someone, you must prove that you have an insurable interest in them. This means that you have a financial stake in their life and that their death would cause you financial loss or hardship. Insurable interest can be present in many situations, but it is typically found in marriage, direct dependents, and business partnerships. Here are some examples of when you would need to prove insurable interest:

• Spouse or former spouse: If you are married or in a committed relationship with someone, you likely depend on each other financially. Therefore, you would have an insurable interest in your spouse or former spouse as their passing would result in a financial loss for you.
• Children or grandchildren: If you have children or grandchildren, you may have financial obligations towards them, such as education or other expenses. In this case, you would need to prove insurable interest to take out a life insurance policy on them.
• Special needs adult child: If you have an adult child with special needs who depends on you financially, you would have an insurable interest in them as their death could result in financial hardship for you.
• Employer or employee: In a business context, an employer may have an insurable interest in key employees or business partners whose contributions are vital to the company's success. Similarly, employees may have an insurable interest in their employer if their income depends on the employer's continued existence.
• Parents: If you are financially dependent on your parents or expect to incur expenses for their final expenses, you may want to take out a life insurance policy on them. In this case, you would need to prove insurable interest.
• Business ventures: If you are starting a business with partners, you may have a mutual insurable interest in each other. The death of a partner could put the business in jeopardy, resulting in financial loss for the remaining partners.
• Creditors and debtors: In some cases, creditors or credit companies may take out life insurance policies on their debtors with their consent. The insurance amount would typically cover the amount owed, and the creditor would need to prove insurable interest.

It's important to note that insurable interest is a requirement when applying for a life insurance policy on someone else. The insurance company will investigate the relationship between the policy owner and the insured person to determine if there is a valid insurable interest. Without proof of insurable interest, the policy application may be denied.

You can't cancel a life insurance policy on you that you didn't purchase

It is not possible to take out a life insurance policy on just anyone. You must have what is known as an "insurable interest" in the person, meaning that you have a financial stake in their life. For example, you may rely on the person financially, or you would suffer financially if they died.

Additionally, the person in question must consent to the policy. They must be aware of and formally agree to the policy for it to be approved by an insurance company.

In most cases, only the policy's originator can cancel or change coverage. However, if you are the recipient of a life insurance policy, you may be able to request that the owner transfers ownership to you, provided they consent. For example, if your parents took out a life insurance policy on you when you were a child, you could ask them to transfer ownership to you when you become an adult. As the new owner, you would then be responsible for paying the premiums and could make any desired changes to the coverage, such as modifying the beneficiaries.

You can convert some policies to long-term protection

While group life insurance is a great workplace benefit, it is usually tied to your job. This means that if you leave the company, your life insurance policy will likely stay behind. However, some employer-sponsored life insurance plans are portable or convertible. Portable policies can be transferred to another group plan with a new employer, while convertible policies allow you to switch to an individual plan, such as whole or universal life insurance. It's important to note that premiums for these policies may increase significantly.

If your plan does not offer portability or conversion options, you may still be able to retain your policy by paying the entire premium out of pocket. This is because, when you leave your job, you are no longer part of your company's group plan, and your former employer is not required to pay for your coverage.

Frequently asked questions