Can You Cover Someone Else With Life Insurance?
Whether or not you can buy life insurance for someone else is dependent on if you have insurable interest and explicit consent from that person. More often than not, policies are purchased for other people so an individual can protect themselves. Business partners, spouses, and even former-spouses take out policies on each other. Buying life insurance for family members, and having multiple policies are both legal and in the best interest of everyone involved.
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UPDATED: Aug 30, 2021
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- You can take out a life insurance policy on another person if you have insurable interest and explicit consent
- In cases of advanced dementia or Alzheimer’s, elicit help from a licensed agent or broker before you apply
- You can buy life insurance for your children, parents, spouse, ex-spouse, sibling, or business partner
Having a life insurance policy on yourself is one of the most important things you should do to protect your loved ones in the case of your death.
Whether or not you can buy life insurance for someone else is an important aspect if you are looking to protect yourself in the event of a death of a person close to you. No matter if you’re buying term life policies or permanent life insurance policies, you need to make sure you are safeguarded.
Learn about how you can buy a life insurance policy for a family member. Enter your ZIP code and get a free quote today.
How does taking out life insurance on another person work?
You can take out a life insurance policy on another person if you have two things: insurable interest and explicit consent.
Insurable interest is mandatory to make sure the person taking out the policy on the insured does not benefit from their death. You need to be able to show the life insurance company that you would suffer financially if that person died.
Insurers don’t want to incentivize someone to shorten someone else’s life.
The insured person has to be involved in the application process. They will have to go through the underwriting process, be involved in answering questions, sometimes take a life insurance medical exam, and sign the policy themselves.
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Who can you buy life insurance for?
There are a handful of people and a handful of reasons for a person to buy a life insurance policy for another person. You may need to cover funeral expenses, outstanding tuition, and other bills that you may need help with after the passing of a loved one.
In cases of advanced dementia or Alzheimer’s, you should elicit help from a licensed agent or broker before you apply to review your options.
Life Insurance for a Spouse
Taking out a life insurance policy on your spouse is very common. This typically happens if one spouse makes a lot more money and the other spouse doesn’t have the funds to pay for their own policy.
If the breadwinner is the owner of the policy, and something happens to them that result in death, their spouse will receive funds to be able to cover funeral expenses and anything else they may need.
Life Insurance for a Business Partner
Business partners take out policies on each other to protect the business if something happens to either partner. It is typically a buy-sell agreement that has instructions on what happens to the business in the event of a death of a partner.
Each partner buys a life insurance policy on the other to receive a death benefit if the partner were to pass away. The funds would then be used to buy the deceased partner’s share of the business from the surviving spouse, children, or other family member.
The most common scenario would be for the business to buy the policy, pay the premium, and act as beneficiary. This will only happen if employees consent to having the policy purchased. The employee also has to go through the life insurance underwriting test.
Life Insurance for Children
Purchasing a life insurance policy for your child is a widespread practice. You can purchase the policy if you are the child’s parent, grandparent, or legal guardian. You would be named the beneficiary.
These policies build cash value that the child is able to access when they grow older.
Any payout will be able to cover funeral costs if the child dies.
Unlike adults, children are waived from needing to provide a medical exam or a signature for the policy.
Life Insurance for an Ex-Spouse
Buying a life insurance policy on a former-spouse is necessary if that former-spouse is making spousal support or child support payments. You have an insurable interest in that ex-spouse since they are providing that support to you.
It is possible that this policy could be ordered by the court during divorce proceedings.
Life Insurance for Parents
You can buy life insurance for your parents if your parents do not carry a life insurance policy of their own. The payout of this policy can help cover funeral costs and expenses.
If you are inheriting assets that have a tax bill, a survivorship life insurance policy on parents can supply funds to pay the tax bill.
Life Insurance for Siblings
Just say your sibling is the caretaker for either of your parents and you want to be protected in case something were to happen to your sibling.
Taking out a life insurance policy on your sibling and making yourself the beneficiary could cover you. The payout from the policy would take care of the costs of your parents’ care.
Can you buy life insurance for someone dying?
Whether or not you can purchase life insurance for someone who is dying depends on a few different things:
- The insurance company
- Each insurance company has different guidelines of whether or not you are insurable. It is important to look around and do your research before purchasing a policy.
- Insurability is whether or not you are healthy enough – according to the insurance company – if you are healthy enough to qualify for coverage. In general, a terminal diagnosis is likely to disqualify you from obtaining life insurance.
- Proof of insurability
- Insurance companies are not going to go by your word; they are going to want proof. How your health is evaluated will depend on the insurance company. Sometimes it is as simple as an application and other times it is as extensive as an exam.
Am I allowed to have multiple life insurance policies?
Yes. People’s needs and circumstances change overtime. The policy your parents took out on you as an infant is not going to be as helpful now that you have a family of your own.
Although life insurance companies won’t be too concerned about how many policies you carry, the amount of benefits you are receiving may raise a red flag. Benefits you are applying for should be reasonable for a person with your income and assets.
Alternatives of carrying multiple policies
Adding a rider to your policy may be easier and more costly instead of purchasing multiple policies.
- Policy rider
- If you find yourself adding or dropping coverage to meet specific needs
- Term life rider
- If you want to convert a portion of your term life policy every few years into permanent life insurance without a medical exam
Overall, purchasing a life insurance policy for someone else and having multiple policies is legal and normal. You want all of your loved ones, as well as yourself, to be protected in all situations.
Purchase a life insurance policy for someone else while also protecting yourself. Enter your ZIP code and get a free quote today.