Secretly taking out a life insurance policy on someone else before that person meets their end seems impossible, but that may be true. Life insurance companies will not allow you to take out a life insurance policy on someone else without letting the person know. However, this does not mean you can’t completely take out life insurance on someone else.
It is legal to purchase a life insurance policy for someone else in some situations, and it is also a good idea. However, it is impossible to take out life insurance on someone you casually know or on a stranger.
To buy life insurance for another person, you need to get permission from them and at the same time show that their losses can put a negative tension on your financial circumstances.
Life insurance involves three parties, which are the policyholders, the insured, and the beneficiaries. Before taking life insurance for someone else, you need to read through this article to guide you through the process.
How to Take Out a Life Insurance Policy on Someone Else
Some life insurance companies may allow you to take out a life insurance policy on someone else in some situations. However, you need to have an insurable interest in the person you would like to insure. This is an important requirement when buying a life insurance policy for someone else. Aside from this, another important thing is their consent; you need the consent of the person to insure them. The following explains these two requirements better:
• Have an insurable interest
To purchase a life insurance policy for someone else, you need to have the ability to show that you would suffer financially if eventually that person dies to the life insurance company. Insurers do not want to propel anyone to shorten the life of someone else. Because of this, they want you to show them that you benefit from that person being alive.
• Get the consent of the insured
You must involve the person you want to purchase a policy for in the application process. They must go through the underwriting process, which includes providing answers to questions and, in some cases, taking a life insurance medical exam. The insured will also need to sign the application. The only time this can be an exception is if you are purchasing life insurance for a child.
After these requirements, you can now proceed with selecting the type of life insurance policy you want to take, get quotes, get their permission if you haven’t, and prove you have an insurable interest in that person.
Who Can You Buy Life Insurance For?
In some situations, it’s a good idea to buy life insurance for someone else. These are common cases in which the person you intend to insure would have an insurable interest for you.
• Your spouse
There are some reasons why a spouse might need to purchase life insurance for the other spouse. The most common reason would be if one spouse is the breadwinner and the other spouse has no source of income to pay for the insurance policy. If the breadwinner is paying for the policy, he or she may want to be the policy owner. However, you can’t take out life insurance without your spouse being aware.
• Your business partner
It is quite common for business partners to have a buy-sell agreement that specifies what happens to the business if something goes wrong with any of them. Most times, life insurance is purchased to fund the buy-sell agreement if any of the partners dies. Every partner purchases a life insurance policy to get a death benefit payment if the partner dies.
• A key employee in your business
If you own a business, you can get key employee or key person life insurance to cover an employee who contributes outstandingly to your business. If this key employee in your business dies, your business may likely be affected.
Getting a key person life insurance policy can help business owners protect their business liabilities while in search of a new person to fill the space. However, the business buys this policy and pays the premiums and beneficiary. But you need to get permission from the employee to purchase life insurance for him or her.
• Your child
Life insurance can be purchased for a child by the child’s parent, grandparents, or legal guardian. Getting your child insured offers financial safety for yourself because you are likely not depending on your child for financial support.
Instead, purchasing life insurance for your child guarantees the child will be insurable even if they develop a health situation as they age. Life insurance policies for children are permanent life insurance policies. It builds cash values that your child can access later in life.
• Your parents
Purchasing life insurance policies for your parents could be a good idea in different situations. If they do not have personal insurance policies, you may want to purchase policies to financially cover the cost of funerals and other expenses for them.
If you are a co-signer of any of their loans, purchasing life insurance policies for your parents can help pay off those debts when they die. It can also be a good financial move to purchase life insurance with long-term care benefits for your parents if you are disturbed about their ability to pay for any long-term care they may need.
• Your sibling
You may have an insurable interest in a sibling if your sibling is taking care of one or both of your parents. If this sibling dies, you will need to hire someone else to care for your parents if you can’t do it yourself. By purchasing a life insurance policy for your sibling, you can list your name as the beneficiary of the policy and get payments that would cover the cost of your parent’s care.
FAQs
Can I take out life insurance on someone else without informing them?
Purchasing life insurance on someone else without their knowledge is legally unacceptable. It creates ethical and legal concerns. However, it is important to inform them before taking out life insurance.
Can I take out life insurance on my baby?
It is possible to take out life insurance for your baby. You may not have life insurance for financial loss which is the primary reason for life insurance but you can insure your baby by purchasing a policy.
Can I take out life insurance on my parents without their knowledge?
To insure someone else, including your parents, you need the signature of the person during the application process. For this reason, you cannot take out life insurance without their knowledge.
