How to Take Out a Life Insurance Policy on Someone Else

Life insurance serves as a financial safeguard, offering a payout to designated 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 coverage for another person. This process, however, involves distinct legal and procedural steps that differentiate it from insuring oneself. Understanding these requirements is fundamental to successfully establishing such a policy.

Establishing Insurable Interest and Consent

Establishing “insurable interest” is primary for taking out a policy. This means the policy owner must demonstrate a financial or emotional stake in the proposed insured’s life. Without this interest, the policy is a speculative wager, prohibited by law. Insurable interest must exist at the time the policy is purchased.

Examples of relationships that satisfy insurable interest include spouses, business partners, and parents. Spouses rely on each other financially; a business partner’s death could cause significant financial hardship. Parents may have an insurable interest in children, especially if financially dependent or if the policy covers final expenses. Creditor-debtor relationships also establish insurable interest, as the creditor would suffer loss.

Consent of the proposed insured is necessary for obtaining a policy on an adult. This protects individuals from policies taken out without knowledge, which could be considered fraudulent. Consent is documented by signature on the application form, confirming agreement. For minors, a parent or legal guardian can provide consent.

Information and Documentation for Application

Information and documentation are required from both the proposed insured and policy owner. For the proposed insured, the application requests full legal name, date of birth, and Social Security Number. Detailed medical history is necessary, including past and present conditions, current medications, and family medical history, providing insight into hereditary health risks.

Lifestyle habits like smoking, alcohol use, and participation in dangerous hobbies (e.g., skydiving, rock climbing) are collected to assess risk. Occupation is relevant; certain professions carry higher risks. This data helps evaluate risk.

For the policy owner, full legal name, date of birth, and Social Security Number are required. Financial information (income, assets, liabilities) demonstrates ability to pay premiums and justifies coverage based on insurable interest. This assessment ensures the policy is proportional to the owner’s financial standing and potential loss. Application forms are provided by the insurer or agents and must be accurate.

The Application Submission and Policy Issuance Process

Once information and documentation are gathered and the application completed, submission begins. Applications can be submitted via agent, online portal, or mail, depending on insurer methods. This initiates the insurer’s assessment.

An important step after submission is the proposed insured’s medical examination (paramedical exam). This exam is conducted by a licensed healthcare professional, often at a convenient location. The exam involves recording vital statistics (height, weight, blood pressure, pulse) and collecting blood and urine samples. For older applicants or higher coverage, additional tests like an electrocardiogram (EKG) may be required to assess heart health.

Following the medical exam, the application enters the underwriting review phase. Underwriters assess the collected information, including medical exam results, to evaluate the risk. They consider age, health, lifestyle, owner’s financial standing, and insurable interest validity. The underwriting process determines the applicant’s risk class, which directly influences premium rates and final policy terms.

After review, the insurer issues a decision: approval, denial, or a counter-offer. If approved, policy documents are issued, and the policy becomes active upon receipt of the initial premium payment.

Policy Ownership and Ongoing Management

Once a policy is issued on another person, the policy owner assumes specific rights and responsibilities distinct from the insured and beneficiary. The policy owner controls the policy, making decisions like paying premiums, changes, or assigning beneficiaries. The insured is the person whose life is covered; the beneficiary receives the death benefit.

Ongoing premium payments are the policy owner’s responsibility to keep the policy in force. Payments can be made via direct debit, online portals, or mail. Timely payments are important; failure to pay within the grace period could lead to policy lapse and termination.

Designating and updating beneficiaries is another right of the policy owner. The owner can name primary and contingent beneficiaries, and it is important to keep this information current, especially after life events (e.g., marriage, divorce, death of a named beneficiary). Policy owners can also make administrative changes, such as updating contact information or, if permitted, transferring ownership. Maintaining open communication with the insurer or agent is important for addressing any changes that might affect the policy.