How to Purchase Life Insurance for Someone Else

Purchasing life insurance for another individual involves specific considerations beyond a standard policy application. This arrangement often provides financial protection to a loved one or supports business continuity in the event of an unexpected loss. Many explore this to secure financial stability for dependents or mitigate company impacts.

Establishing the Right to Insure

Before an insurance company will issue a policy on someone else’s life, two fundamental legal requirements must be satisfied: insurable interest and consent. Insurable interest means the policy purchaser would experience a legitimate financial or emotional loss if the insured person were to pass away. This requirement helps prevent individuals from taking out policies purely for speculative gain.

Common examples include spouses, who rely on each other’s income and support. Parents and adult children often have insurable interest, especially if one provides financial care. Business partners also share an insurable interest, as one’s death can disrupt the business.

The proposed insured must provide explicit consent for the policy. Consent is obtained through their signature on application forms and participation in medical examinations. Transparency and cooperation from the proposed insured are necessary.

Information Collection for the Application

To complete an application for another individual, the purchaser gathers information about the proposed insured. This includes basic personal details such as their full name, date of birth, current address, and Social Security number. Occupation is requested to assess professional risks.

A comprehensive medical history is a significant part of the application, encompassing past and present health conditions, medications, and previous surgeries. Family medical history is collected to identify hereditary health predispositions. Insurers use this data to assess the proposed insured’s overall health and potential longevity.

Lifestyle information provides insight into the proposed insured’s risk profile. This includes habits such as smoking, vaping, alcohol consumption, and participation in hazardous hobbies like skydiving or scuba diving. Travel history, particularly to higher-risk regions, may also be relevant.

Financial information, while less extensive than health details, can be requested, especially for larger policy amounts. This may include income, assets, liabilities, and existing insurance policies. Insurers use financial data to ensure the requested coverage amount aligns with the proposed insured’s financial situation and to determine appropriate premium rates.

The Application and Underwriting Process

Once information is gathered and insurable interest and consent are met, the next step is submitting the application. The purchaser initiates this process, often working with an insurance agent who assists with forms. Applications can be submitted through various methods, including online portals, via an agent, or by mailing physical documents.

A medical examination for the proposed insured is a required component of the application process. This exam is scheduled at the proposed insured’s convenience and conducted by a licensed medical professional, often at no cost. The examination includes measurements of height, weight, and blood pressure, along with blood and urine samples for laboratory analysis.

After application submission and medical exams, the insurer’s underwriting department reviews all collected information. Underwriters assess the risk associated with insuring the proposed individual, considering factors like health, lifestyle, and other personal data. This evaluation helps the insurer determine eligibility for coverage and establish appropriate premium rates.

After underwriting review, the insurer decides on the application. Possible outcomes include approval, approval with modifications (such as a higher premium due to increased risk), or a decline. If approved, the policy is issued, and documents outlining coverage details and terms are provided to the policy owner.

Policy Ownership and Beneficiary Designations

When purchasing life insurance for someone else, it is important to distinguish between distinct policy roles. The “insured” is the individual whose life is covered by the policy and whose passing triggers the death benefit. The “policy owner” is the individual or entity who controls the policy, pays the premiums, and has the authority to make changes, such as modifying beneficiaries. The “beneficiary” is the person or entity designated to receive the death benefit upon the insured’s death.

Ownership of the policy can vary when the insured is not the owner. The purchaser can retain ownership, granting full control over the policy’s terms. In some cases, a trust may be designated as the policy owner, which can be a strategy for estate planning or managing the distribution of proceeds. The policy owner holds the rights and responsibilities associated with the policy, including the ability to surrender it or transfer ownership.

Designating beneficiaries ensures the death benefit is paid according to the policy owner’s wishes. Policy owners can name primary beneficiaries, who are first in line to receive the payout, and contingent beneficiaries, who would receive the benefit if the primary beneficiaries are no longer living or cannot be found. It is important to provide clear and accurate designations, including full legal names and Social Security numbers, for all beneficiaries.

Regularly reviewing and updating beneficiary designations is prudent, especially after significant life events like marriage, divorce, or a child’s birth. While most policies allow for changes to beneficiaries, some may have specific rules, such as requiring spousal consent in certain situations. The designated beneficiary in the policy at the time of the insured’s death will be the one who receives the proceeds, regardless of other estate planning documents like a will.