Most people buy life insurance as both the policyholder and the insured person under the policy and then name a beneficiary to receive the death benefit. But occasionally it may make sense to purchase a policy that insures someone else and names you as the beneficiary.
Getting a policy on someone else's behalf comes with its own set of legal requirements. You can’t get a policy for someone without them knowing and you must be able to show insurable interest — proof that you will suffer financially if they die.
To purchase a life insurance policy on someone else you must prove financial interest between both parties.
The person you're insuring needs to participate in the application process and sign the policy.
It is more cost-efficient to forgo an extra policy and simply use a policy rider to cover dependents who are underage.
How a life insurance policy works
There are three parties privy to a life insurance policy.
Policyholder Owns the policy, pays for the premiums, and is the only individual who can make changes to the contract
Insured Person whose life is insured and whose death triggers a death benefit payout to beneficiaries
Beneficiaries Receive a death benefit from the life insurance company when the insured dies
Typically the policyholder and the insured are the same people, but there are situations where you may need to pay for and own a life insurance policy that pays out a death benefit when someone else dies (for example, if you share ownership of a business with someone).
How to buy life insurance for someone else
If you plan to take out a life insurance policy on someone else, there are two key components to be aware of: insurable interest and the life insurance application.
To take out a life insurance policy on someone else, you’ll need to prove to the insurance company that you have something called insurable interest. You can roughly translate that to "financial interest,” which means that you would need to prove that if the insured were to die, it would financially burden you.
Typically, spouses and parents can purchase policies without otherwise proving insurable interest. Others such as business partners or friends will likely need documentation to prove the financial need.
The application process
To apply for a policy for someone else, you'll need both their signature the final paperwork and cooperation for the application itself. This includes answering questions on the initial application and, for most policies, taking a required medical exam.
Even if you'll be paying the premiums and taking care of the contractual details of the policy, the insured will still need to be part of the process.
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Who you can take life insurance out on
There are a few key reasons why it sometimes makes sense to pay for someone else's insurance. You may need or want to purchase a life insurance policy on someone else in the following situations:
Your business partner
If you own and operate a business with a partner, you could buy a policy on your business partner, called key person insurance.
Your spouse or life partner
If you’re the breadwinner in your family, it may make financial sense for you to purchase not only your own life insurance policy — which would name your spouse as the beneficiary if you die — but also a policy to insure your spouse.
Your minor child
Parents and grandparents can both take whole life insurance policies out on children, though it is not usually recommended. Because children don’t provide financial support to their families, purchasing a life insurance policy on them is usually unnecessary.
A child rider, which pays out a small death benefit if your child dies, might be a better way to ensure your financial security due to its lower cost.
Your adult child
If you have cosigned private loans with your children, you may want to take out a life insurance policy to cover those loans if your child dies prematurely.
Alternatively, if you are the adult child in this scenario, it might make sense for you to take out a life insurance policy on your parents and pay their premiums so you’re covered for the unexpected.
For the most part, it’s unlikely that you have an insurable interest in your sibling, but there are some cases in which you might. For example, if your sister is taking care of your elderly parents and she died, you would need to replace your parents' caretaker.
Taking out a traditional life insurance policy on your parents, such as whole or term life, can be difficult because it is hard to prove that you have insurable interest in your parents. You may be able to get final expense insurance to cover their funeral expenses. The best way to help your parents receive coverage is to encourage them to apply for their own policy and list you as a beneficiary.
Your former spouse
If you or your children still depend on your former spouse for income, childcare, or other needs, consider buying life insurance on them and naming yourself or your adult children as beneficiaries.
Sometimes, during divorce proceedings, a judge may require life insurance as part of spousal support. This court order can come alongside alimony payments, child support, or other financial-related assets.
When you shouldn’t take a life insurance policy out on someone else
If you can't get someone's consent or you don't have insurable interest in them, you won't be able to take a life insurance policy out on that person. For a life insurance policy to go in force, the insured individual must sign for the policy and verify their medical information.
Purchasing a policy without this information is insurance fraud, and repercussions can include denied claims, canceled policies, and in some cases, prosecution. Always be honest on a life insurance application so you don’t risk losing any necessary financial support.
Frequently asked questions
Can someone take a life insurance policy out on me without my knowledge?
No, someone can only take a life insurance policy out on you with your consent and participation in the application process. They also need to prove they rely on you financially.
Is it illegal to have life insurance on someone else?
It's legal to own a life insurance policy on someone else, but you'll need the insured's consent and insurers will require proof that you need the coverage.
Can you take out a life insurance policy on a parent?
If your parent consents, you can take out a life insurance policy on them if you’d suffer financially upon their death. The insured must be able to complete and answer application questions.