Can You Get a Life Insurance Policy on Someone Else?

It is possible to obtain a life insurance policy on another individual, though it involves specific conditions and requirements. This approach is distinct from standard personal policies and is subject to particular rules to ensure its proper and ethical application. These rules dictate who can be insured and under what circumstances.

What Insurable Interest Means

“Insurable interest” is a fundamental legal and financial requirement for obtaining a life insurance policy on someone else. This concept ensures the policyholder would genuinely suffer a financial loss or detriment if the insured person were to die. It prevents speculative policies, ensuring insurance provides protection against loss, not an opportunity for unwarranted gain.

A clear financial connection must be demonstrated between the policy owner and the insured individual. Spouses or domestic partners typically have an insurable interest due to shared financial responsibilities. Parents often have an insurable interest in their minor children, and adult children might have it for elderly parents if there’s a financial dependency.

In a business context, partners often possess insurable interest in one another. Creditors also hold an insurable interest in their debtors. Conversely, a casual acquaintance or stranger with no financial ties would not meet the insurable interest criteria, as there would be no demonstrable financial loss upon their passing.

Consent and the Application Process

Even when a clear insurable interest exists, the person whose life is being insured must provide explicit written consent for the policy to be issued. This consent is a non-negotiable step, ensuring transparency and preventing policies from being taken out without the individual’s knowledge or approval.

The application process involves both the applicant (potential policy owner) and the insured individual. The applicant provides their financial information, demonstrating the insurable interest, and is responsible for premium payments. The insured person is required to provide personal and health information, often by signing the application form and undergoing a medical examination. This medical exam assesses their health status, which influences the policy’s premium rates.

Sensitive identification information, such as a Social Security Number, is required from the insured to complete the application. The insurer evaluates all submitted information to assess risk and determine policy eligibility and cost. This process ensures that the policy is underwritten accurately and legally.

Typical Scenarios for Policies on Others

Life insurance policies on others commonly serve to mitigate specific financial risks or obligations. One frequent scenario involves spouses or domestic partners taking out policies on each other. This provides financial protection against the loss of income or the significant economic contribution a partner makes to the household, ensuring the surviving partner can maintain their financial stability.

Parents may obtain policies on their minor children, primarily to cover potential final expenses, though it is less common for income replacement given children typically do not have an income. For adult children, a policy on an elderly parent can help cover end-of-life costs, such as funeral expenses, medical bills, or to manage care responsibilities, especially if there’s a financial dependency or caregiving role.

In the business realm, “key person” insurance is a common use case where a business purchases a policy on an executive or employee whose death would cause substantial financial harm to the company. This allows the business to cover operational costs, recruit a replacement, or manage financial losses. Similarly, business partners often buy policies on each other to fund buy-sell agreements, enabling the surviving partners to purchase the deceased partner’s share of the business. Creditors may also secure policies on debtors to ensure that outstanding loans can be repaid in the event of the debtor’s death.