How to Put Life Insurance on Someone

Life insurance offers financial protection to beneficiaries upon the death of the insured individual. While most people secure policies on their own lives, it is also possible to obtain life insurance on another person. This process involves specific legal and financial requirements.

Understanding Insurable Interest

“Insurable interest” refers to the legitimate financial or emotional stake a person has in the continued life of another individual. This concept is a legal requirement for obtaining a life insurance policy on someone else. Without it, an insurance contract could be seen as a speculative wager rather than a tool for financial protection. Insurable interest ensures the policyholder would genuinely suffer a financial loss or hardship if the insured person were to pass away.

Common examples of relationships that establish insurable interest include spouses, where financial well-being is often intertwined. Parents may have an insurable interest in their dependent children, particularly to cover potential financial burdens like end-of-life expenses or educational loans. Business partners frequently hold insurable interest in one another, as the death of a partner could severely impact the business’s operations and financial stability. A creditor also has an insurable interest in a debtor, limited to the amount of the outstanding loan, to ensure repayment in the event of the debtor’s death.

The requirement for insurable interest prevents the misuse of life insurance for speculative purposes or fraud. It aligns the policy owner’s interests with the preservation of the insured’s life. The extent of this interest often influences the maximum death benefit an insurer is willing to issue, ensuring coverage is commensurate with the potential financial impact of the insured’s passing.

Obtaining Consent and Preparing for Application

Securing life insurance on another individual requires their explicit, informed consent. The person whose life is being insured must be aware of the policy and agree to it. This consent is formalized through their signature on the application form.

To facilitate the insurer’s evaluation, personal, medical, and financial information is required directly from the insured individual. This includes their full legal name, date of birth, and Social Security number. A comprehensive medical history is necessary, detailing past and present health conditions, treatments, and medications. Information regarding lifestyle habits, such as smoking, alcohol consumption, and participation in hazardous activities, is also collected.

For policies with high coverage amounts, financial details of the insured may be requested. This could include income, assets, and existing debts, which help the insurer assess the appropriate level of coverage based on the insured’s “human life value.” This information allows the insurance company to determine eligibility and appropriate premium rates.

Navigating the Application and Underwriting Process

Once all necessary information and the insured’s consent have been gathered, the formal application process begins with submitting the completed forms to the insurance company. This submission can occur electronically or through physical documentation. The application outlines the proposed policy details, including the requested death benefit and premium payment structure.

A key step involves the proposed insured undergoing any required medical examinations. These include a physical examination, blood tests, and urine samples to assess current health status. The insurer may also request authorization to access the insured’s medical records from healthcare providers. This medical information, along with other lifestyle and financial data, forms the basis of the underwriting process.

Underwriting is the insurer’s process of evaluating the risk associated with insuring an individual. Underwriters assess all collected information to determine the likelihood of the insured’s death during the policy term. Based on this review, the insurer reaches a decision regarding the application. Potential outcomes include approval, approval with modifications (such as higher premiums or specific exclusions), or denial if the risk is too high. Upon approval, the policy contract is issued and delivered, activating coverage.

Managing the Policy and Beneficiary Designations

After a life insurance policy is issued, several distinct roles come into play: the policy owner, the insured, and the beneficiary. The policy owner is the individual or entity who purchased the policy, holds all rights to it, and is responsible for paying premiums. The insured is the person whose life is covered by the policy, and whose death triggers the payout of the death benefit. The beneficiary is the person or entity designated to receive the death benefit when the insured passes away.

The policy owner controls the policy, including the authority to make significant decisions. This control extends to changing beneficiaries, taking out policy loans against any accumulated cash value in certain permanent life insurance policies, or surrendering the policy for its cash value. The policy owner should carefully designate beneficiaries and ensure these designations align with their financial planning goals. Beneficiary designations can be updated as circumstances change, such as due to marriage, divorce, or the birth of children, requiring a formal request to the insurance company.

Ongoing policy management involves consistently paying scheduled premiums to keep coverage in force. Failure to pay premiums can result in the policy lapsing, meaning coverage terminates. Upon the death of the insured, the designated beneficiary submits a claim to the insurance company, providing necessary documentation, including a death certificate. Once the claim is approved, the death benefit is paid out to the beneficiary, typically as a tax-free lump sum payment.