Can You Take Out a Life Insurance Policy on Someone Else?

When it comes to life insurance, it's common for individuals to be both the policyholder and the insured. However, it's also possible for the two parties to be different people. If you're considering buying life insurance for someone else, you must meet certain conditions to ensure the arrangement is valid and legal.

Generally, you can take out a life insurance policy on someone else if the following conditions apply:

• You get the other person's consent to take out life insurance on them.
• You have proof of insurable interest, which means the other person's death would cause financial hardship in your life.

If you are planning on getting life insurance on someone else, make sure you understand the associated regulations and important considerations.

Life insurance serves as a financial safeguard, offering monetary stability to beneficiaries after the insured's passing. This arrangement involves three key roles: the insured, the policyholder and the beneficiary.

• The Insured: The individual whose life is covered by the policy.
• The Policyholder: The person who owns the policy and is responsible for premium payments.
• The Beneficiary: The individual or entity designated to receive the death benefit.

Typically, the insured and the policyholder are the same person. However, there are instances where these roles diverge. For instance, you might find yourself getting life insurance on someone else like a parent, a key business employee or a family member for whom you have an insurable interest. In these cases, the policyholder and the insured are different individuals.

In most circumstances, people take out life insurance policies on themselves and name someone else as the beneficiary. But you might take out a life insurance policy on someone else for several reasons.

Regardless of the life insurance buyer's relationship with the insured, there must be an insurable interest to take a life insurance policy out on someone. You cannot get a life insurance policy on someone without them knowing, as they must be part of the process. The proposed insured has to sign the application and participate in the underwriting process for the policy to be approved and issued.

Insurable interest is a foundational concept in life insurance, serving as the legal justification for getting a life insurance policy on someone else. Having an insurable interest in someone else means you would experience hardship or financial loss if they were to die. The policy owner can use the death benefit proceeds to recoup their loss. Demonstrating insurable interest is mandatory to take out life insurance on someone else.

Common scenarios where insurable interest is evident include spousal relationships, parent-child connections and business partnerships. For instance, spouses generally have an insurable interest in each other because they often share financial responsibilities. This makes buying life insurance on a partner reasonable. Similarly, business partners have a vested interest in each other's wellbeing, as the death of one could significantly impact the business.

Proving insurable interest can include verifying both parties' identification and relationship through a phone interview or by producing written documentation like a buy-sell agreement. Even with proof of insurable interest, the proposed insured must consent to and sign the application. A parent-minor-child relationship is typically the only exception since a minor child cannot consent to a life insurance contract.

Consent and insurable interest are two fundamental criteria that you must meet to take out a life insurance policy on someone else. Failing to satisfy these conditions means you cannot initiate a life insurance policy on someone else. Here are examples of people you cannot get life insurance for:

• Strangers: Insuring someone you have no relationship with is not permissible because you lack an insurable interest in their life.
• Non-Consenting Adults: If an adult does not give their consent, taking out life insurance on them is not legally viable. Consent is a legal requirement that ensures the insured is aware of and agrees to the terms.
• Minors Without Parental Consent: You cannot take out a life insurance policy on a minor unless you have explicit consent from their parent or guardian. Even if you have an insurable interest, such as being a close relative, parental consent is mandatory.
• Public Figures: Celebrities and public figures are generally off-limits unless you can prove a direct insurable interest, which is unlikely for most people.

Understanding these limitations can help you navigate the legal landscape of life insurance effectively and ensure that you do not inadvertently step into unethical or illegal territory.

Obtaining permission is necessary when taking out a life insurance policy on someone else, so you cannot get life insurance without the proposed insured's knowledge. The proposed insured party must participate in the life insurance process, from signing a consent form as part of the application to verifying medical and personal history during the underwriting process. If a medical exam is required, the proposed insured will have to complete it.

Although life insurance laws can vary by state, every state requires the insured to give consent in writing before the process can begin. The only exception is when a parent is taking out life insurance on a family member who is a minor child. Since a minor cannot consent to a contract, the parent can buy life insurance after proving they are the legal guardian.

Getting life insurance on someone else without their consent is illegal. It's also considered insurance fraud. The consequences of getting life insurance without someone’s knowledge can include:

When taking out a life insurance policy on someone else isn't a viable option, various alternatives can still provide financial security. These alternatives are designed to meet similar objectives without the need to meet the insurable interest requirement.

Sometimes, taking out life insurance on someone else makes sense. Here are answers to the most common questions about when you can take out a life insurance policy on someone else.