Selling Sister Life Insurance: Conflict Or Care?

Life insurance is a crucial part of financial planning that can provide a sense of security and protection for your loved ones in case of unexpected events. While most people consider getting life insurance for themselves or their spouse, it’s equally important to think about protecting your siblings. However, many people are not aware of the process and requirements for getting life insurance for a sibling.

The short answer is, yes, you can get life insurance on someone else. However, there are certain guidelines that must be followed. One of the primary factors will be if there is an insurable interest or not. An insurable interest means that if someone died you would suffer financial loss. In the case of siblings, there is generally considered to be an insurable interest because the loss of a sibling could affect the financial well-being of the surviving siblings, for example, if the siblings co-owned a business together or if the deceased sibling was providing financial support to the surviving siblings.

The first thing that needs to happen is that the sibling purchasing the policy would need to undergo the usual underwriting process. This typically involves answering questions about the health and lifestyle of the insured sibling and possibly completing a medical exam. The insurance company will use this information to determine the risk of insuring the sibling and set the policy premium.

It is important to note that for a life insurance policy to be valid, the person buying the policy must have an insurable interest in the insured person. If there is no insurable interest, the policy may be considered void. For example, a stranger cannot buy a life insurance policy on someone else without an insurable interest.

In addition, all policies will require a signed approval from the insured, used to acknowledge that they give the policy owner and beneficiary the right to insurance policy funds should they pass away.

What is insurable interest?

Insurable interest is a type of investment that protects anything subject to financial loss. A person or entity has an insurable interest in an item, event, or person when damage or loss to the object would cause financial loss or other hardships. To have an insurable interest, a person or entity would take out an insurance policy to protect the person, item, or event in question. The insurance policy would mitigate the risk of loss if something happens to the asset, such as it becoming damaged or lost.

Insurable interest is the basis of all insurance policies and links the insured and owner of the policy. It can be an object which, if damaged or destroyed, would result in financial hardship for the policyholder. The policy must not create a moral hazard, in which a policyholder would have a financial incentive to allow or even cause a loss.

Insurable interest is an essential requirement for issuing an insurance policy. It makes the entity or event legal, valid, and protected against intentionally harmful acts. People not subject to financial loss do not have an insurable interest and therefore cannot purchase an insurance policy to cover themselves.

Insurable interest specifically applies to people or entities where there is a reasonable assumption of longevity or sustainability, barring any unforeseen adverse events. Insurable interest insures against the prospect of a loss to this person or entity. For example, a business may have an insurable interest in its C-suite officers but not its average employees.

In a life insurance policy, an individual is insured instead of an asset or property. As a result, insurable interest in life insurance is the emotional, legal, and financial interest a person has in a life insurance policyholder. For example, if you are the primary earner in your family, your partner or dependent children may have an insurable interest in you as they could experience significant financial turmoil without your income.

How to buy life insurance for your sister or brother

Yes, it is possible to purchase life insurance for your sibling, but there are a few things to keep in mind.

Firstly, you must be able to prove that you have an 'insurable interest' in your sibling. This means that you would suffer financial loss if they were to pass away. For example, if you shared assets or bills, or if you would become responsible for their children or elderly parents.

Secondly, you must obtain your sibling's consent. They will need to sign papers and may need to undergo a medical exam.

If you are looking for a small burial policy, this process may be more straightforward, but for larger policies, you will need to demonstrate insurable interest and get your sibling's permission.

It is worth noting that, in the case of siblings, there is generally considered to be an insurable interest because the loss of a sibling could affect the financial well-being of the surviving siblings.

Some of the best companies for life insurance for siblings, offering comprehensive coverage, flexible policies, and exceptional service, are New York Life, AIG, and State Farm.

What is insured consent?

Insured consent is a legal requirement for someone to take out a life insurance policy on another person. The insured person must give their consent for the policy to be valid. This is usually done by signing the relevant paperwork, but it can also be done through a phone interview or a medical exam. Without this consent, purchasing a life insurance policy on someone else is illegal and constitutes insurance fraud.

In addition to insured consent, the person taking out the policy must also have an 'insurable interest' in the person they are insuring. This means that the insured person's death would affect the policyholder financially. For example, if the insured person is the policyholder's spouse, their finances would be immediately impacted by their death. However, if the insured person is the policyholder's neighbour, their finances would not be impacted.

Consent and insurable interest are both required for a life insurance policy to be valid.

What are the steps for purchasing life insurance?

Steps for purchasing life insurance:

Verify whether you need life insurance coverage.

Consider purchasing a policy if any of these conditions apply to your situation:

• Someone depends on you financially and would likely still need significant financial resources after your death.
• Your estate won't have enough liquid assets (cash, investments, property, or other saleable items) to cover its taxes and debt, eroding the inheritance you plan to leave behind.
• You wish to cover your funeral and burial expenses at least so that your assets remain intact for your legacy and heirs.

Calculate how much life insurance coverage you need.

Take a quick snapshot of your finances and answer the following three crucial questions:

• What financial resources will be available to your survivors or heirs after your death?
• When will these resources become available?
• Determine what your survivor's financial needs may be after your death.

Decide on your financial goals for your life insurance.

The overall reason for buying life insurance is to leave behind financial resources for who or what is important to you. Premiums payments to the insurance company go toward the death benefit, the financial payout after your death.

Determine what type of life insurance best meets your financial needs.

You may have heard about various categories of life insurance, including term life, whole life, and universal life. Each comes with fundamental distinctions. Consider how these differences might work for you.

Find out if you need to add any "riders" to the policy.

Life insurance policies offer primary benefits according to the type of policy you purchase. But your coverage can be expanded or personalized through riders, optional additions to a life insurance policy that provide supplemental coverage or benefits you wouldn't receive with a standard policy.

Shop around to find the best life insurance coverage for you.

There are many ways to save money when buying life insurance, but they don't always entail paying a lower premium immediately. Nonetheless, life insurance is a very competitive business, and, therefore, quotes can vary significantly between companies.

Decide whether to pay annual premiums at once or in installments.

You may have the option to pay an annual lump sum or spread out the yearly cost over smaller, more frequent payments. It may be more cost-effective to pay annually as often there may be a relatively large additional charge for paying in installments.

Tell your beneficiaries about your life insurance policy.

Once the policy is purchased, tell your beneficiaries which company issued it, where to find the paper copy of the policy, and any specifics about what you want them to do with the death benefit.

Complete the application:

After choosing the provider that fits your needs, the next step is to fill out an application. You will be required to include basic personal information, as well as your Social Security number and driver's license number. Additionally, you might be asked by the insurance company or your agent to submit an Attending Physician Statement (APS), which helps the insurance company verify your medical history.

Prepare for your phone interview:

After submitting an application, the insurance company might require a phone interview. The interview is mostly used to confirm the information you included on the application, but there may be some additional questions asked.

Schedule a life insurance medical exam:

Many life insurance companies and policy types require applicants to get a physical exam before they can be approved for coverage. The life insurance medical exam is like a regular doctor appointment, but the insurance company’s medical examiner may be able to visit your home or office to see you.

Wait for approval:

When the application process is complete, your job is done. The insurance company’s underwriter will take the information gathered from your application, phone interview and medical exam to determine if you’re eligible for coverage and, if so, what your premium is.

Accept the policy and pay your first premium:

If you get approved and are happy with the quoted premium, you will be sent the policy documents to sign and approve. If you aren’t satisfied with the quoted rate, you can work with your agent to adjust the policy.

What is the reason behind insurable interest?

Insurable interest is a type of investment that protects anything subject to financial loss. It is the basis of all insurance policies and is required for issuing an insurance policy.

Insurable interest specifically applies to people or entities where there is a reasonable assumption of longevity or sustainability, barring any unforeseen adverse events. Insurable interest insures against the prospect of a loss to this person or entity. For example, a business may have an insurable interest in its C-suite officers but not its average employees.

Insurable interest can be an object which, if damaged or destroyed, would result in financial hardship for the policyholder. The policy must not create a moral hazard, in which a policyholder would have a financial incentive to cause a loss.

In a life insurance policy, an individual is insured instead of an asset or property. As a result, insurable interest in life insurance is the emotional, legal, and financial interest a person has in a life insurance policyholder. For example, if you are the primary earner in your family, your partner or dependent children may have an insurable interest in you. This is because they could experience significant financial turmoil without your income.

Insurable interest is, essentially, proof that an individual or entity would experience financial or other hardships as the result of damage to or loss of an item or person. This is evaluated during the underwriting process to ensure a direct link. Such proof of insurable interest is required for all insurance policies.

Frequently asked questions