Buying life insurance on someone else is something you see in movies. They do it secretively only to make out financially on that person’s death.
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Fortunately, in real life that doesn’t happen. You can’t secretly buy life insurance on someone else, but you can in certain circumstances. Knowing how it works, what the limitations are, and what type of insurance to buy is important.
Here’s the deal.
Table of Content
- Who can you Buy Life Insurance On?
- How do you Buy Life Insurance for Someone Else?
- Is it Illegal to Buy Life Insurance on Someone Else?
- How Much Insurance can you Buy on Someone?
- Can you Buy Life Insurance for a Friend?
- Can you Buy Life Insurance for a Parent without their Consent?
- How Much Will it Cost?
- Final Thoughts
Who can you Buy Life Insurance On?
You can only take out life insurance on someone you have a vested interest in – you can’t take out a policy on a stranger or even someone you know well. You must prove that if the person died that you’re insuring, it would affect you financially.
Now that could mean many different people.
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There’s your spouse, of course. If your spouse died, you might be hurt financially, even if he/she isn’t the breadwinner. Take a spouse that stays home and takes care of the kids as an example. If that spouse died, you would have to replace the sitting services with a paid service, or you may have to change jobs so you can be home with the kids. Insuring your non-working spouse protects you and the kids should he/she die prematurely.
What about kids? It sounds crazy, but you can take out a policy on them too.
If you insure your kids, it’s usually for one of two reasons.
- You want insurance coverage should they die prematurely, and you need help covering the final expenses.
- Your child is an adult, and you co-signed loans or a mortgage for him/her. The insurance policy could cover those loans should he/she die early.
A few other unique situations where you may take out insurance on someone other than a parent or child, including your siblings, your parents, or even an ex-spouse.
Why would you insure a sibling?
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It’s not common, but if you have a brother or sister who takes care of your elderly parents and your sibling died, you have a financial interest. You would have to cover the costs of caring for your parents, which you could use the money from your sibling’s life insurance payout to cover.
Some people can take out a final expense life insurance policy on their elderly parents. It’s often hard to prove you have an insurable interest in them, though. The exception to the rule would be if your parents don’t have any money saved for their final expenses and you are their executor – you’d be responsible for their final expenses.
Finally, there’s your ex-spouse. Even though you’ve gone your separate ways, you may rely on him/her financially, especially if you have children. If your ex-spouse dies, you’d have the policy to replace the money you’d lose due to his/her death.
How do you Buy Life Insurance for Someone Else?
To take out life insurance on someone else, you need two things:
- You must prove insurable interest like we talked about above
- You must have the other party’s consent to buy the insurance
The insured must complete the application and sign it him/herself. You can’t just buy a policy on them without them knowing about it.
Is it Illegal to Buy Life Insurance on Someone Else?
It’s completely legal to buy life insurance for others IF you have their consent and if you can prove insurable interest.
There’s another side to it.
It can be illegal if you take out insurance on someone without them knowing, if you sign their application, or if you don’t have an insurable interest, aka you don’t rely on them financially. If a person’s death wouldn’t affect your finances, you don’t have an insurable interest, and it wouldn’t be right that you took out a policy on him/her.
How Much Insurance can you Buy on Someone?
Like any insurance policy, the insurance company will only let you take out a policy that’s within reason. For example, if you would be on the hook for your parents’ funeral, you couldn’t take out a $1 million policy. The policy amount must be in line with the purpose of the coverage.
Can you Buy Life Insurance for a Friend?
Unless you can come up with a reason for insurable interest on a friend, you cannot take insurance out on them. You must prove how you would suffer financially if your friend died, and most people wouldn’t be able to do that.
Can you Buy Life Insurance for a Parent without their Consent?
You cannot buy life insurance on a parent without their consent – it’s illegal to do so. You can help a loved one complete the application, but the parent must sign the application themself for it to be valid.
Here’s how you can try to convince them.
How Much Will it Cost?
Like any insurance policy, the costs vary based on the situation. The younger the person is you’re insuring, the less the premiums will be, but other factors play a role too, including:
- The health of the person you’re insuring
- The amount of insurance you’re taking out
- The type of insurance (term vs. whole vs. final expense insurance)
Term insurance is the cheapest type of insurance but only works on younger people, not seniors. If you need final expense insurance or insurance on seniors over 80, you’ll need final expense insurance, a whole life policy. The premiums may be higher, especially if you need guaranteed insurance coverage that doesn’t require a medical exam if the loved one you’re insuring won’t pass the exam.
Can you take out life insurance for someone else?
You can, but only if you meet the proper requirements.
Insurance companies don’t let you buy insurance on just anyone or for any reason. You have to prove there is a financial dependence for an insurance company to allow you to purchase insurance on others.