Should you give life insurance as a Christmas gift?
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Nothing says "happy holidays" quite like life insurance. OK, maybe that's a stretch, but getting your loved ones the financial protection they need is certainly a noble, if not festive, endeavor.
If you want to get yourself some life insurance as a present for your partner or spouse, by all means, get the application process started. Underwriting takes, on average, from four to six weeks, so you'll probably have to bail on any plans involving them opening a package of paperwork on Christmas Day. Our life insurance calculator can help you quickly determine how much coverage you need.
But if you're thinking about buying a policy for someone else, you're going to have to ruin the surprise.
Why? Well, you can't simply insure someone else's life. You need their consent to start the application process. They'll also have to take a medical exam so the insurer can determine whether it's comfortable issuing a policy and, if so, what rate to charge. And, once the policy is issued, they'll have to sign the paperwork before it's formally in effect.
You'll have to demonstrate what's known as "insurable interest" in order to get the policy approved. Basically, you need to prove to the life insurer that you'll suffer a financial burden in the event of the person's death.
Having said that, there are times when buying life insurance for someone else is in order. People most commonly insure:
A business partner: Also known as key person insurance, small business owners may opt to take a policies out on a co-owner so they can keep the organization running in a worst-case scenario.
An adult child: Parents who co-sign private student loans sometimes take out policies on their child as they would be responsible for paying back that debt if the student borrower passed away.
A sibling: A family member might buy life insurance for a brother or sister caring for their elderly parents or parent. In this case, the death benefit would go toward continuing care.
A spouse: Primary breadwinners sometimes buy life insurance or add a rider to their own policy to cover a stay-at-home spouse, though, even in that instance, separate term life policies might be a better fit. (We can help spouses compare and buy life insurance together.)
Holiday talk aside, if you think you need life insurance on a third party, talk to a lawyer, accountant or financial adviser about how this policy will work in the context of your larger financial safety net.
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