How to Take Out a Life Insurance Policy on Someone

Life insurance is a contract between a policyholder and an insurance company. The insurer pledges to pay a designated sum to beneficiaries upon the death of an insured individual. This provides security, protecting beneficiaries from financial hardship due to the loss of an income earner. People often obtain policies on others to safeguard against such impacts.

Establishing Insurable Interest and Consent

Obtaining a life insurance policy on another individual requires two legal prerequisites: insurable interest and explicit consent from the proposed insured. Insurable interest means the policy owner would suffer a financial or emotional loss if the insured person were to die. This safeguards against speculative purchases or harmful acts.

Relationships establishing insurable interest include spouses, domestic partners, parent-child relationships, business partners, and creditors. Emotional connections can also establish insurable interest, particularly in direct family relationships.

Regardless of the relationship, the proposed insured’s explicit, informed consent is mandatory. This consent is typically documented through a written agreement or signature on the application form. Securing a policy without this consent can lead to legal complications, including policy invalidation.

Gathering Required Information and Documentation

Before applying for a life insurance policy on another individual, gather specific information and documentation. For the applicant (policy owner), this includes full legal name, address, date of birth, Social Security Number, and financial details.

Personal details for the proposed insured are also necessary, including full name, address, date of birth, Social Security Number, and medical history. Health status, lifestyle habits, occupation, and risky hobbies are collected to assess risk. Financial information like income, assets, and liabilities may be requested to determine coverage.

Details for all beneficiaries (primary and contingent) must also be prepared, including full names, relationship to the insured, dates of birth, and Social Security Numbers. Required documents typically include government-issued identification for both the applicant and proposed insured, proof of age, proof of address, and financial statements or income verification.

Navigating the Application and Underwriting Process

After gathering information, submit the application to the chosen life insurance provider online, via paper form, or with an agent. The insurer then initiates underwriting to assess risk.

This often involves the proposed insured undergoing a medical examination, typically scheduled at their home or office and paid for by the insurer. The exam includes recording height, weight, pulse, blood pressure, and collecting blood and urine samples for lab tests. An EKG may be required. The proposed insured will also answer questions about their medical history, prescriptions, and lifestyle.

During underwriting, the insurer evaluates all collected data, including application information, medical exam results, and reports from external databases. These databases include the Medical Information Bureau (MIB), which stores coded health information to prevent fraud. Insurers may also review prescription history, motor vehicle records, and credit history. The applicant and proposed insured might be contacted for additional information. Underwriting culminates in a decision: approval at standard rates, approval with a higher premium, or denial.

Policy Issuance and Ongoing Management

After approval, the life insurance policy is issued. The policy document, delivered physically or electronically, contains all terms and conditions. The policy owner should review these details for accuracy and understanding.

The policy owner is responsible for ongoing premium payments. Consistent payment is necessary to keep the policy in force; failure to pay can lead to lapse of coverage.

Periodically reviewing and updating beneficiary designations is also important. Life events like marriage, divorce, birth of a child, or death of a named beneficiary may necessitate changes to ensure proceeds are distributed as desired.

Regular policy reviews, recommended annually or after major life events, ensure coverage remains adequate and aligned with evolving financial needs. These reviews allow for adjustments to coverage amounts or features as circumstances change.