Can You Buy Life Insurance for Someone Else?

It is possible to purchase a life insurance policy on another individual, but specific legal and financial requirements apply. The process involves demonstrating a valid financial connection to the insured person and securing their explicit permission. Understanding these foundational elements clarifies how such policies operate within established financial frameworks.

Understanding Insurable Interest

Purchasing a life insurance policy on another person requires demonstrating “insurable interest,” a fundamental legal principle. Insurable interest signifies a legitimate financial or emotional connection to the insured individual, where their death would result in a financial loss or hardship for the policy purchaser. Without this demonstrable interest, an insurance policy cannot be legally issued. This requirement helps prevent policies from being used for speculative gains.

For instance, a spouse typically has an insurable interest in their partner due to shared financial obligations and mutual reliance on income. Similarly, parents often have an insurable interest in their minor children, and adult children may have it in their aging parents, particularly if they are responsible for financial support or end-of-life expenses.

In a business context, partners often hold insurable interest in one another, as the death of one could significantly impact the company’s operations and financial stability. A creditor also possesses an insurable interest in a debtor, typically up to the amount of the outstanding loan, to protect against financial loss if the debtor passes away. This principle ensures the policy is tied to a genuine need for financial protection.

The Requirement for Consent

Beyond demonstrating insurable interest, obtaining the insured person’s explicit consent is a mandatory and legally enforced requirement. This consent ensures transparency and protects individuals from having policies taken out on them without their knowledge or approval. Insurance providers will not issue a policy unless the person whose life is being insured has formally agreed to it.

The consent process typically involves the insured person signing the life insurance application and other necessary forms. This signature confirms their awareness and agreement to the policy being established on their life. In some cases, a phone interview between the insurance company and the insured may also be part of the consent verification process. Attempting to secure a policy without the insured’s knowledge or by falsifying their signature is a serious legal offense.

Even if a policy purchaser has a clear insurable interest, such as a family member, the requirement for consent remains. For adults, their active participation and agreement are universally required. While exceptions exist for minor children, where a parent or legal guardian can provide consent on their behalf, for adults, personal consent is indispensable for the policy to be valid. This dual requirement of insurable interest and explicit consent forms the foundation for legally sound life insurance arrangements involving a third party.

The Application Process

The application process for purchasing life insurance on another individual integrates the requirements of insurable interest and consent. The person initiating the policy, known as the policy owner or applicant, begins by completing the application forms. These forms require detailed information about both the applicant and the person whose life will be insured, including personal details, financial information, and the nature of their relationship.

A crucial step involves the insured individual’s active participation. They are generally required to sign specific sections of the application, providing formal consent. Additionally, the insured person may need to undergo a medical examination, including providing blood and urine samples, as part of the underwriting process to assess their health and determine risk. This medical evaluation helps the insurer accurately price the policy.

During the application, the insurer verifies the existence of insurable interest and documented consent. This verification might involve reviewing the relationship details provided on the form, or conducting a phone interview to confirm the insured’s agreement. The insurer’s review ensures all legal and company requirements are met before a policy is approved and issued.

Policy Ownership and Beneficiary Designation

Once a life insurance policy on another person’s life is issued, three distinct roles become clear: the policy owner, the insured, and the beneficiary. The policy owner is the individual or entity who purchases the policy and is responsible for paying the premiums. This person holds all the rights and control over the policy, including the ability to make changes, access cash value if applicable, and even surrender the policy.

The insured is the individual whose life is covered by the policy, and whose death triggers the payment of the death benefit. While the policy owner and the insured can be the same person, in the context of purchasing a policy on someone else, they are distinct roles. The beneficiary is the person or entity designated by the policy owner to receive the death benefit payout when the insured passes away.

The policy owner has the flexibility to designate almost anyone as a beneficiary, which can include individuals, trusts, charities, or their own estate. They can also change beneficiaries at any time, provided the designation is revocable, by submitting a formal change-of-beneficiary form to the insurance company. It is important for the policy owner to keep beneficiary information updated to ensure the death benefit is distributed according to their wishes.