Can You Buy Life Insurance for Someone Else?
- Find out when you can buy life insurance for someone else. Learn what insurable interest is and how it helps determine who you can purchase life insurance for.
The loss of a loved one is always difficult, and the last thing you want to do is face financial worries along with grief. Life insurance provides protection against lost income and expenses that arise due to someone's death. If you believe that someone's death could cause you financial difficulties, you may be able to get an insurance policy in their name. Insurance companies have strict rules regarding when you can buy life insurance for someone else that you need to know before you start exploring coverage options.
Can You Buy Life Insurance for Someone Else?
Generally, you can buy life insurance for someone else under certain circumstances. Insurers have two requirements that you must meet.
Presence of Insurable Interest
You can't buy life insurance for just anyone. To purchase a policy for another person, you must show that you would face financial hardship in the event of their death. If losing someone would mean loss of income, increased expense or sizable debt, you have an insurable interest in that person. Insurers won't approve an application if you can't establish this interest.
Permission From the Other Person
If you're seeking a life insurance policy for another adult, they must know about your plans. Often, the insurance company will require them to answer questions about their medical history or undergo a health exam.
Who Can I Buy Life Insurance For?
Life insurance companies don't create lists of specific relationships that they'll accept when you're buying a policy for someone else. Generally, an insurable interest is likely to exist with the following people.
If your spouse earns more money or contributes significantly to your monthly income, you can usually buy life insurance for them. Even if your spouse doesn't work, you may be able to insure them to pay off a debt that they owe or to cover the cost of their funeral and burial expenses. You may want to consider first-to-die life insurance, a joint policy that covers you both and pays a death benefit to the spouse who lives longer.
Your Former Spouse
If you receive child support or alimony from a former spouse, you likely have an insurable interest in them. Divorce settlements may even mandate that a life insurance policy be purchased.
You can take out life insurance to cover the cost of a minor child's burial or medical expenses. Some parents choose to buy whole life policies for young children. This type of insurance builds a cash value over time that could be used to pay for higher education or other costs in the future. If you already have life insurance, you may be able to add your child to your policy by purchasing a rider.
You may wish to take out life insurance for your parents to:
- Cover the cost of their final expenses if they don't have life insurance
- Pay off a debt that you've cosigned for
- Provide funds for long-term care to help cover the cost of an assisted living or nursing home
- Pay estate taxes that you may be responsible for in the event of their death — survivorship life insurance is a type of policy intended for this purpose.
If your sibling helps care for your parents or provides free child care for your kids, you may have an insurable interest in them. Their death may mean you'd have to hire a caregiver or pay for day care, a nanny or a babysitter. The death benefit of a life insurance policy would help offset these costs.
Your Business Partner
The death of a person you co-own a business with can complicate your finances. To protect yourself from your partner's share being passed on to heirs that aren't involved with the business, you can have a buy-sell agreement drafted. With this arrangement, you would take out life insurance policies with death benefits equal to the other's share in the company. If your partner dies, you would use the death benefit to buy them out and take full control of the company.
An Important Employee
Insurance companies may offer what is called key person or key employee policies. The death benefit can be used to cover the cost of hiring a temporary employee, replacing the employee or hiring a new employee. The money can also help cover other expenses that arise due to the death of an employee. Normally, the company would purchase and own the policy.
Can You Purchase Life Insurance on Someone Without Them Knowing?
No, life insurance companies won't provide coverage for someone without their knowledge. The person being covered by the policy must play a role in the application process. In addition, the person usually must sign the application. Children are the one exception. You can purchase a life insurance policy for a minor child who's your dependent without their signature or consent.
Can You Get Life Insurance on Someone Who Is Dying?
Getting life insurance for a person who is dying can be difficult or even impossible in some cases. Many insurance companies are unlikely to cover a person who has been diagnosed with a terminal illness. If you lie on the application or try to conceal their health condition, you'll be committing insurance fraud. False information can result in policy cancellation or death benefit claim denial.
Some possible ways to get life insurance for someone who is dying include:
- Coverage through an employer. Some employers offer voluntary life insurance policies to their employees, and sometimes, plans allow you to purchase policies for your spouse and children. With voluntary employee life, you usually can't be denied for a preexisting medical condition, and normally, you are not required to undergo a medical examination. You may forfeit the policy if you leave or lose your job. Some voluntary employee life insurance can be converted to individual insurance, but you may need to undergo a health exam or pay a fee.
- Guaranteed acceptance term life. Some insurance companies offer term life policies for almost anyone regardless of medical history that do not require a medical exam. In some cases, diagnosis of a terminal illness may be one of the only exceptions for guaranteed acceptance, making coverage unavailable to someone who is not expected to live. Premium rates for this type of insurance are often high, and the death benefit is typically low.