Can You Get Life Insurance on Someone Else?

by Jeff Rose on September 7, 2016 · 2 comments

buy life insurance for someone elseThe short answer is a “definite maybe”. To get a life insurance policy on anyone there absolutely must be an “insurable interest” on the proposed insured.

People You Might Want to Buy Life Insurance on:

Here are 9 types of relationships which might provide an insurable interest for you to buy life insurance on someone else:

  1. Spouse or Life Partner
  2. Divorced Spouse
  3. Parents
  4. Children
  5. Grandchildren
  6. Key Charitable donors to a Non Profit
  7. Business partner(s)
  8. Key Employees
  9. You are borrowing a lot of money from a business or individual

Insurable interest generally means that there is some type of relationship, such as a business or personal relationship as indicated above, that would cause a person (the beneficiary) to have a monetary, or financial, interest in the continuing life of another person (the insured).

People ask me all the time “can you get life insurance on someone else?”  I usually tell them yes that it’s possible, as long as there is that insurable interest when the policy is applied for – it doesn’t have to continue through the life of the insurance policy.

Their next question is, OK, but “can you get life insurance on anyone without them knowing about it?” To buy life insurance on other people without their knowledge generally can happen in only a couple of situations:

  • You might be able to buy $1,000 or $5,000 of dependent life insurance on your spouse or dependent children at work without their knowledge. In the past few years, more and more top life insurance companies are offering a larger amount of death benefit (up to $50,000) on spouses. This is without their knowledge, signature or physical exam. Think Cincinnati Life Insurance Company and Companion Life Insurance Company. Sometimes this could be even on a Guaranteed Issue basis and is usually offered as a Payroll deduction voluntary plan.
  • You can purchase life insurance on children and minors without their signature or knowledge. More on reasons why you would want to do this later.

Let’s look at some definite reasons why you can get life insurance on someone else, and what options you may want to consider when considering a life insurance policy on another person.

If you have questions about buying life insurance on other people, just call us or complete our Compare Quotes form on this webpage.

We are independent representatives, and since life insurance companies have different underwriting standards for different situations, we can help find the best life insurance company for your particular situation.

How Would Someone Know if I am Buying Life Insurance on Them?

Unless you meet the two situations listed above where you don’t need their permission, here is why anyone else would know that you are trying to buy life insurance on them:

  • The insured person (the someone else) will need to sign the application. This is to allow the insurance company to check medical records to comply with HIPAA, and to confirm to the insurance company that they understand someone is applying for life insurance on them. Forging someone else’s signature would cause a fraudulent application and a claim would be denied.
  • The insurance company representative or third party person (paramed, for example) will need to ask a lot of health questions directly to them either in person or on the telephone.
  • That paramed representative might have to show up in person to check their blood pressure, and measure their height and weight.
  • That same paramed could even have to draw some of their blood and make them pee in a bottle for a urine specimen.

Still think they won’t know?  I doubt it. Anyway, it just makes sense that people would want to give permission to anyone wanting to take out life insurance on their life.

6 Reasons to Buy Life Insurance on a Spouse or Domestic Partner

Here are the most common reasons folks get life insurance on someone else like their spouse or partner:

  1. You depend on their INCOME to pay for household expenses that would continue such as the mortgage or rent; groceries, utilities, clothing, etc. This is especially true if the surviving spouse doesn’t work and has small children to care for.
  2. You have DEBT that you would like to get paid off such as Credit card debt or you would just like to have the mortgage paid off with life insurance proceeds.
  3. You do not have an emergency fund that would pay for such things as burial expenses.
  4. There are small children in the household, and you would like to have funds to pay for their future COLLEGE EDUCATION.
  5. You can’t afford a true Long Term Care insurance policy, however you want a life insurance policy that has some Long Term Care benefits as an option.
  6. This is slightly more complicated, but you buy a second to die life insurance policy that would provide for potential estate taxes.

These are the 5 most popular reasons to get life insurance on a spouse or domestic partner.

Should I ask for Life Insurance if I am Getting Divorced?

OK, so you never bought life insurance on your spouse or domestic partner when things were going well, and now it has been going downhill.

You’re getting a divorce and still have the household debt, the children wanting to go to college, and you haven’t worked outside the home in 20 years.  Then YES, include getting a life insurance policy on your ex as part of your agreement.

This is especially important to have when the children are young in terms of having money to pay for their college education.  Also, who would pay child support?

If you get push back on this topic, I recommend suggesting that the other person buy a Return of Premium policy, so that after 15 or 20 years, then they are no longer required to keep the policy, and they can get all of their money back.

Things to Consider when Buying Life Insurance on Parents

We also have many clients that ask “can I buy life insurance for my parents?” I tell them that you just have to make sure your parent is in good health and they are aware you are buying life insurance on their behalf.

Buying life insurance for parents is not always the easiest application to get through the life insurance company underwriting due to medical conditions that come with aging.

If you happen to find out that one or more of your parents have health conditions that would prevent them from getting preferred rates, then you might want to consider checking out the types of policies that don’t require a physical from a doctor’s office.

If you’re an older adult, and your parents are even older, then you might have a need to buy a Final Expense life insurance policy which would help pay for funeral expenses. These type plans normally have a death benefit in the $5,000 to $35,000 range.

Another reason adult children find themselves buying life insurance for parents is that if the parents haven’t thought of long term care, these Life Insurance Policies may need to include an option to provide for long term care using up to 50% of the death benefit.

The life insurance companies may require that there be a Medical Provider to certify there is some type of terminal illness before long term care benefits could be paid out from a life insurance policy.

Lastly, it would be helpful to take care of any remaining indebtedness that your parents might have.

So to sum up the 3 main reasons to buy life insurance for your parents and how to use death benefit proceeds:

  1. Pay for final burial expenses
  2. Provide an option to help offset long term care expenses
  3. Satisfy any remaining debt obligations

What are the Options in Buying Life Insurance on Children?

In considering buying a life insurance policy on a child, I recommend buying them their own policy.  There are two primary reasons for doing this when they don’t have any personal debt or income.

The first and main reason is to guarantee their insurability.  This is done by purchasing a life insurance policy for them that includes a special future insurability rider. This allows them to buy more death benefit (usually up to 5 times the original death benefit) at certain times as they get older.

For example, you buy a $25,000 life insurance policy on your 3 year old son. Obviously that seems like overkill, and it is for now.  But what if they developed a dreaded disease like Multiple Sclerosis, Juvenile Diabetes, or something else that would cause them to pay a very high premium for life insurance as they got older and really needed a higher death benefit?

With this future insurability rider, they could buy an additional $25,000 at age 25, 28, 31, and 34 guaranteed, without any medical questions or medical exams.  This would give them up to $125,000 in death benefit at a preferred rate.

The second reason to buy life insurance on a child is that you can buy a permanent life insurance policy (whole life or universal life), and let the cash build up. This asset fund could either go towards college education expenses, or let it build up so one day they could stop paying the premiums and keep a paid up life insurance policy.

Why would a Grandparent take out a Life Insurance Policy on a Grandchild?

A great thing for a grandparent to do is to offer to pay for a life insurance policy on a grandchild, making the parents the beneficiaries and possibly the owner of the policy.

This can really help parents of young children who may also be struggling financially and can’t really afford to pay the premiums and take out a life insurance policy on their children.

This cash build up in the plan could be used for college expenses for the grandchildren.  As a matter of fact this would be a very responsible Christmas present for a grandchild.

A good budget for something like this would be around $25 per month for a permanent life insurance policy that builds cash value.

Reasons a Non Profit Would Take Out a Life Insurance Policy on its Donors

For someone who has a strong desire to give to a favorite charity in a big way, letting their favorite nonprofit take out a life insurance policy on themselves is probably the only way to make a significant donation if they otherwise don’t have the means to make an outright cash gift.

There are possible tax deductions available for the premium payer in a situation like this.  Call us for details and we can explain that to you.

Buying Life Insurance on Business Partners

A Buy-Sell agreement is sometimes known as a “business will.” Without going into too much detail here, most of the time it is in the best interests of the deceased partner’s heirs as well as the surviving partner(s) to fund the business will with Life Insurance in the event of the death of a partner.

There are different ways to do this typically based on the type of entity of the business and the number of partners or stockholders.

By getting a business will drawn up and funding it with life insurance, a business owner can take care of their surviving spouse by keeping him or her from having to worry about possibly being taken advantage of by the surviving partner.

Can You Get Life Insurance on Employees?

Life insurance purchased by a business on the life of an employee is generally known as “Key Man” insurance if it is on the life of a specific very important employee of the business.

This is commonly used by businesses that purchase cheap life insurance on employees who occupy a hard to replace status within their company. Usually this is the largest stock holder or CEO/CFO of the company where their tragic loss can have a tremendous effect on the business.

This could also be the case of the very top Salesperson in the Marketing and Sales department.  In this case, the life insurance can cover the loss and tide over the financial difficulties the business might suffer until everything gets worked out.

The business could also use the death proceeds to be able to go out and offer a signing bonus in order to attract the best talent available for that position.

I Need Some Money – How About That Loan?

If you wanted to borrow money from an individual or entity such as a bank or lending firm, they probably would want to buy a life insurance policy on you.

They may make you buy the life insurance policy and just make them the beneficiary.  This would make sense so that if something suddenly happened to you, they would have a better chance of getting their money back.

All Others

This is where it gets tricky because purchasing life insurance on anyone outside your close family circle or a key individual in a business is the type of idea that you see played out in mystery novels and crime shows. After all, what is your benefit to seeing someone with no real connection to you covered by life insurance unless you can gain monetarily from being the beneficiary when they die?

If you are thinking of insuring someone outside your family or business, then you will need their consent and a very, very good reason to tell the insurance company why they should have life insurance.

What if I no longer need the life insurance on someone else?

You may one day find yourself in a situation where you are the owner of a life insurance policy on another person, but you no longer need it.  This might be because the insurable interest is not there, a debt is paid off, you no longer want to pay the premiums (if you are the premium payer), or for some other reason.  What do you do?

The policy can be sold for either the cash value if there is any, or it could be sold for the value of the future death benefit.  This is called a life settlement, or viatical settlement.

This is where someone or some business is willing to pay you cash money now for your life insurance policy, and they will pick up paying the premiums and own the policy and the future death benefit proceeds.

What Do I Do Now if I Want To Buy a Policy On Someone Else?

  1. First make sure you do have some type of Insurable Interest in the person you want to insure based on all the above situations.
  2. Unless you are insuring a minor or a spouse on a group voluntary policy at work, have the permission of the person you want to insure.
  3. Have some knowledge of the death benefit amount you want to apply for.
  4. Have a general understanding of the medical condition of the potential insured.
  5. Contact us or complete the Compare Quotes form to get a preliminary rate to see if the rates for your death benefit needs fit within your budget.

{ 2 comments… read them below or add one }

Phillip April 21, 2015 at 5:44 pm

I want to purchse life insurance on my best friend.He has two grandaughters whos parents are in jail and not likely to get out anytime soon.Some of the money would benefit their education and the rest to me.Is this a good reason

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Jeff Rose May 12, 2015 at 2:29 pm

@Phillip It definitely can be a good reason. Be sure to contact our toll-free number and we can discuss your options.

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