Can You Buy Life Insurance for Someone Else
When you buy life insurance, you're purchasing a policy now to help protect your loved one's financial future after you pass.
However, you might wonder can you take out a life insurance policy on anyone? There are some instances, where it make sense to buy life insurance for someone else and name yourself as the beneficiary. For example, your spouse, parent or business partner.
Before you buy a policy, here's what to consider if you're exploring buying life insurance for someone else.
What to Consider
The basic answer to "can you buy life insurance for someone else?" is yes. You can take out a life insurance policy on anyone, but there are specific criteria to meet first. The most important thing to understand is you can't take out life insurance on just anyone; two standards must be met before you can move forward.
Proof of Insurable Interest
If you want to buy life insurance on someone else, you must show you would suffer financially if the other person passed away. You can't take out a life insurance policy on a stranger you've never met who has no bearing on your financial situation. Instead, your insurer is looking for a relationship between you and the person you're taking the policy out on, such as a spouse, someone you have an emotional and financial interest in their well-being.
It's known as insurable interest, and it's something you'll need to prove to your insurance provider. If your spouse were to pass unexpectedly, for example, it could cause you substantial financial and emotional hardship.
Consent From the Other Party
The other main stipulation for buying life insurance for someone else is consent from the other party. The person you want to take out a policy on will not only need to consent to it, but they'll also undergo the traditional underwriting process.
That means they will have to complete an application, answer health questions, and provide financial and other personal information. They may also need to take a medical exam. If a medical exam is not required, the other person still needs to consent to the policy. The same is true even if you plan to pay the premiums on the policy.
Who Can You Take Out a Life Insurance Policy On?
One of the more common instances of buying life insurance on someone else happens with married couples. Since most married couples share finances, it's much easier to prove insurable interest.
For example, if you are the main income source with a stay-at-home partner, that partner could prove they would suffer a financial burden if you were to pass. With your consent, they can take out a policy on you that they own and are the primary beneficiary.
Business partners or co-owners may also take out life insurance policies on each other. In these instances, if one partner dies, the remaining partner will be the beneficiary of the policy, receiving the death benefit. It's also called key person insurance.
Having this policy may help ensure the business does not suffer a financial burden or go under if one partner dies. As the remaining partner, you could potentially use those funds to buy out the remaining shares and continue the business under their control.
If you've been wondering how to get life insurance for your parents, even if they are elderly, the same rules apply. To prove insurable interest, you might need to show that you have co-signed a loan with your parents, you still rely on them for financial needs, or you will be responsible for their financial obligations when they pass.
Depending on your parent's age and health, they might be limited in the types of insurance available to them. One potential route to explore is Guaranteed Issue Whole Life insurance. It's designed to cover up to $25,000 in expenses, including funeral costs, and does not require answering health questions or a medical exam.
What Types of Life Insurance Can I Buy For Others?
When it comes to life insurance, there is no one-size-fits-all policy that's perfect for everyone, but there are options if you want to buy life insurance for someone else.
Some other products to explore include:
- Term Life Insurance: Runs for a set term, anywhere from 10 to 30 years. It's the most affordable type of life insurance and popular among younger people who want protection while paying off a mortgage or putting kids through school. Many spouses purchase these policies for each other.
- Guaranteed Issue Whole Life Insurance: This is a policy aimed at older Americans aged between 50 and 80. You might consider it for your parents. It doesn't require medical exams or questions and is often used to help cover final expenses such as outstanding medical bills or funeral expenses.
- Child Life Insurance: Many parents and grandparents want to help give the gift of financial independence. You can take out a child life policy on your children or grandchildren, and it will accrue cash value until they are an adult (ages will vary).
Your needs, as well as your loved ones, will help you determine the best policy for your situation.