You can take out a life insurance policy on another person, although it’s less common than getting a policy for yourself. If you do get a policy for someone else, you’ll have to prove to the insurance company that their death will impact you financially.
Why should I buy life insurance for someone else?
It makes sense to buy life insurance for someone else if you’ll be financially affected by their death. While this can apply to anyone – especially family members – as a licensed agent, I saw this most commonly with an adult child purchasing coverage for their parent.
Many times, adult children manage their parent’s finances and are responsible for handling their debts and managing funeral expenses. Getting life insurance for a parent makes the financial aspects of their death much more manageable.
Getting an insurance policy for someone else can be helpful in both family and business relationships. Here’s why.
Make sure family members are protected financially
You can get a policy for anyone in your family. For instance, if you’ve co-signed a loan for any of your adult children, if you share any major debts or assets with a sibling (like a mortgage on a house), or if you would be responsible for burial expenses for anyone in your family, life insurance coverage could be helpful for you.
Ensure business continuity
If you’re a business owner and your business would suffer if any of your co-owners or employees died, you’ll be able to take out life insurance for them to protect the business.
Whether their contribution is through their technical skills, expertise, or leadership, a life insurance policy will give the company time to recover financially if this person is lost.
Who can you take life insurance out on?
You can get life insurance for anyone you have an insurable interest in — meaning you’ll be financially impacted if they die. This might include:
Spouses or partners
Your spouse or partner
If you share finances with a partner, it almost always makes sense for each spouse to have a separate life insurance policy. Owning your spouse’s policy doesn’t offer any financial benefits — it’s usually just a matter of administrative preference.
But if you’re considering owning your spouse’s policy, talk to your agent when you begin the application process. They will help you get your policies set up accordingly.
Your minor child
Parents and grandparents can both take whole life insurance policies out on children, though it’s not usually recommended. Because children don’t provide financial support to their families, the major benefit of life insurance would be to offset the cost of a funeral. Purchasing a life insurance policy on them is usually unnecessary.
A child rider is often a better way to insure your child at a lower cost. Child riders are add-ons you can buy for your policy that pay out a small death benefit if any of your children die.
Your adult child
If you’ve co-signed 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’re 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 if they pass away and you need financial support.
It’s usually unlikely that you have an insurable interest in your sibling, but there are some cases in which you might. For example, if you bought a house with your sibling and would struggle to afford it in their absence.
Taking out a traditional life insurance policy on your parents, such as whole life or term life, can be difficult because it can be hard to prove that you have insurable interest in your parents as an adult.
However, you may be able to get final expense insurance to cover their funeral expenses if you’d be paying for their end-of-life care. 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.
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. This would help you continue to operate the business in their absence.
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 out life insurance on that person. For a policy to become active, the insured must sign for the policy and verify their medical information.
If you lie, sign documentation for someone else, or use coercion to set up a policy for another person, you could risk forfeiting your policy due to insurance fraud.
How to buy life insurance for someone else
Buying life insurance for someone else is very similar to getting your own policy. In most cases, the person you’re insuring will need to go through the application process with you, so it’s helpful if they’re present on the initial call when you speak with an agent.
1. Get permission
A life insurance policy is a legal contract, so all of the parties involved need to understand the agreement and willingly consent to be part of it. If you’re taking out a policy on someone else, you’ll need to explain to them how the insurance policy works and get them to sign the documents for the policy to be valid.
Family members can be resistant to the idea of you spending money on them. In these cases, it’s usually helpful to remind them that the insurance policy is designed to protect you financially and the cost of any premiums you pay will be worth it.
2. Get quotes
Once you are in agreement with the insured person about getting a policy, you’ll connect with a licensed agent to get life insurance quotes. Quotes are estimates about how much it will cost you for the amount of life insurance you need.
Quotes vary between insurance companies because they all evaluate risk differently. The agent you work with will ask detailed questions about the insured’s health and lifestyle profile. This information will help get you an accurate quote and determine which policy will be best for you.
At Policygenius, we have a team of licensed agents who can compare rates for you among 12 different insurance companies, giving you confidence that you’re getting the best possible life insurance policy available.
3. Determine insurable interest
To establish insurable interest, you can usually just report to the agent how you are tied financially to the person you’re insuring.
In some cases, the insurer may ask for documentation to prove that you have a financial relationship. This could mean a deed to a property with both of your names on it, or receipts for bills that you’ve paid on their behalf.
4. Complete the application process
To apply for a policy for someone else, you’ll need their cooperation and consent. This means they’ll need to answer questions on the initial application and potentially take an in-person 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 participate in the application process.
Additional reporting by Brian Acton.