Can You Buy Life Insurance on Someone Else?

It is possible to purchase a life insurance policy on another individual, though this process involves specific legal and ethical considerations that differ from buying a policy for oneself. The primary requirements include demonstrating a legitimate financial or emotional connection, known as insurable interest, and obtaining explicit consent from the person whose life will be insured. These conditions ensure that life insurance serves its intended purpose of financial protection rather than speculative gain.

The Concept of Insurable Interest

Insurable interest is a foundational principle in life insurance, requiring that the policyholder would experience a genuine financial or emotional loss if the insured person were to pass away. This requirement helps prevent speculative gambling on human life and reduces moral hazard. Without demonstrating this interest, an insurance company will reject an application. The interest must exist at the time the policy is purchased.

Family relationships establish insurable interest, such as spouses who rely on each other’s income and contributions. Parents have an insurable interest in their minor children, and adult children may have it for dependent parents, particularly for end-of-life costs. In these instances, the relationship itself can indicate sufficient insurable interest without extensive financial proof.

Beyond family, insurable interest arises in business and creditor-debtor relationships. Business partners have an interest in each other’s lives to protect the continuity and financial stability of their joint enterprise. Employers may also have an insurable interest in key employees whose death would significantly impact business operations or expertise. Similarly, a creditor has an insurable interest in a debtor’s life up to the amount of the debt, as the creditor would suffer a financial loss if the debt is not recovered due to the debtor’s death.

Obtaining Consent and Information

A step in obtaining life insurance on another person is securing their explicit, written consent. This consent is required for adult individuals to protect their privacy and prevent fraud. The individual whose life is being insured must sign the application. Forging a signature is illegal and can lead to severe penalties.

During this phase, sensitive information is requested from the insured person. This includes personal identification details such as their full name, date of birth, and Social Security number. Medical history is also required, covering current health conditions, past illnesses, medications, and family medical history.

Information about lifestyle habits, such as smoking, alcohol use, or engagement in dangerous hobbies, is also collected to assess risk. Financial information related to the applicant’s need for coverage may also be relevant. This data collection ensures the insurer has a clear picture of the risk associated with insuring the individual.

The Application and Underwriting Process

Once insurable interest is established and the insured’s consent and initial information are gathered, the applicant submits the application to the insurance company. This application includes all the details collected about the insured, forming the basis for the insurer’s evaluation. The application process initiates the underwriting phase, where the insurance company assesses the risk associated with providing coverage.

Underwriting involves a review of the submitted information to determine insurability and premium rates. This includes scheduling a medical examination for the insured, which involves taking vital signs, height, weight, and collecting blood and urine samples. These tests check for various health indicators and conditions. Insurers may also review medical records from the insured’s doctors, check prescription drug databases, and examine public records like motor vehicle reports, all with the insured’s consent.

The insurer uses this data to make an informed decision. They may approve the policy, decline it, or offer it with modified terms, such as higher premiums or reduced coverage, based on the assessed risk. The person who purchases the policy becomes the policy owner, responsible for paying premiums and designating who will receive the death benefit as the beneficiary. The insured’s role concludes after providing consent and participating in the medical examination.