Can I Buy a Life Insurance Policy on Anyone?

Purchasing a life insurance policy on another individual involves legal and ethical considerations. This ability revolves around two core concepts: “insurable interest” and the “consent” of the insured. These principles regulate policy issuance and protect all parties. Understanding these requirements is essential before applying.

Understanding Insurable Interest

Insurable interest is a fundamental legal principle in life insurance. It signifies a financial or emotional stake in the insured’s continued life, meaning the policy owner would suffer a genuine loss if the insured person were to die. This prevents policies from being speculative wagers, where individuals might profit from another’s death without a legitimate connection. This concept is embedded in U.S. insurance law to mitigate moral hazard, ensuring policies are for protection, not financial gain.

Insurable interest is required when the policy is initiated. If this interest does not exist at inception, the contract may be void or unenforceable. This safeguards against a policyholder benefiting from the death of someone in whom they have no genuine interest.

Common Relationships and Insurable Interest

Insurable interest commonly arises in relationships with financial or emotional dependency. Family relationships often demonstrate this: spouses due to financial and emotional interdependence; parents in minor children reflecting financial responsibility; and adult children in parents, especially if financially dependent or responsible for funeral costs.

Business relationships also establish insurable interest. A business may have an interest in a key employee whose death would cause substantial financial losses. Business partners typically hold an interest in one another, as a partner’s death can disrupt operations and necessitate buy-sell agreements. A creditor holds an interest in a debtor’s life, limited to the outstanding debt, ensuring loan recovery if the debtor passes away.

The Requirement for Consent

Even with insurable interest, obtaining the insured’s consent is almost always mandatory. This protects privacy and autonomy, preventing policies from being taken out without knowledge or approval. The law generally mandates explicit consent, typically through a written signature on the insurance application. This signature confirms agreement and acknowledges that personal and health information will be shared for underwriting.

Failing to secure proper consent can lead to policy invalidation or legal issues. Insurers generally will not issue a policy without the insured’s signature, as it safeguards against fraud. While rare exceptions exist, such as a parent insuring a minor child or certain business contexts, written consent from the insured adult is standard. Any attempt to obtain a policy without required consent could result in it being declared void.

Applying for a Policy on Another Person

When applying for a life insurance policy where the policy owner differs from the insured, both parties have distinct roles. The policy owner initiates the application, but the insured provides personal and health information, including medical history, lifestyle habits, and financial disclosures. The insured may also need a medical examination.

Both the policy owner and the insured typically sign the application. The insured’s signature affirms information accuracy and consent. The policy owner’s signature indicates agreement to own the policy and pay premiums. The insurer assesses this information to determine eligibility and rates. Upon approval, the policy is issued to the owner, with the death benefit payable upon the insured’s passing.