Can I Purchase Life Insurance on Someone Else?

A lot of our helpful life insurance blog posts detail buying life insurance for yourself, in order to protect your loved ones. A life insurance policy acts as a financial cornerstone and can help protect your legacy and your assets.

But, what if you need to buy life insurance on someone else? Can you name yourself the beneficiary and owner of the policy in order to protect your investment? The short answer is, YES! Of course with the consent of the borrower.

While a lot of pop culture and true crime shows make this seem like a sinister option done for monetary gain, taking a life insurance policy out on someone else actually can make sense in certain situations. Depending on your relationship with the insured and provided you have the insured party’s consent.

How Does Buying Life Insurance for Someone Else Work?

In order to purchase an insurance policy for another individual, an insurer will look for something called an “insurable interest.” By definition, an “insurable interest” is an object that would cause financial hardship for the policyholder if damaged or destroyed. In this instance, the “insurable interest” refers to the relationship between the policyholder and the insured. If the insured dies and the policyholder will experience a financial loss, the insurers will consider this life insurance option. 

Now, you cannot just buy a life insurance policy on anyone you wish! Insurers can find insurable interest in relationships between family members, romantic & domestic partners, or business partners. There is a process associated with this type of life insurance, and you cannot just purchase a policy without the insured’s consent. Otherwise, you may find yourself at risk for forgery charges or jail time. 

If you are buying life insurance on someone else:

• The individual whose life is being insured must sign the application.
• The insured must give permission for the insurance company to collect their data. The data collected may include previous health information, previous life insurance applications, prescription drug records, and any motor vehicle reports. 
• The insured will also have to undergo a full life insurance medical exam. We do not recommend purchasing a no-exam insurance policy on someone else. The no-exam life insurance carriers will have specific and approved beneficiaries that they will only accept so it can be difficult to get approved.

When To Consider Buying Life Insurance on Another Person

Perhaps one of the main reasons for buying a life insurance policy on another individual is the ability to have control over the policy as the policyholder, rather than just being the beneficiary. You, the policyholder, are the individual responsible for paying the monthly or annual premiums. Additionally, you can name or change the beneficiary of the policy, deciding who will receive the money when the insured dies. You have all of the controlling rights to the policy.

You are taking out a loan on your business partner.

Particularly in a smaller family-style business model, owned by you and a partner. Life insurance can actually be an important tool for figuring out the buy-sell agreement after your business partner passes away. 

Many businesses have a buy-sell agreement (or a buyout agreement) in place, which governs circumstances if a co-owner chooses or is forced to leave the business, or dies. Life insurance is an important tool for facilitating this agreement, as business partners name themselves as beneficiaries, allowing them to buy their partner’s share of the business, or to obtain a loan to keep the business afloat.

You have co-signed on a loan.

Another situation in which you may want to consider taking a life insurance policy out on another person is if you have co-signed on a loan. If the original borrower passes away, the lender will turn to you to pay off the remaining loan owed. 

Depending on the size of the loan, you may not consider repayment a hardship. If the loan is a significant amount and you feel that you and your family would have a hard time repaying it. You should consider taking a life insurance policy out on the borrower until the loan is paid off. This could be a good option for private student loans (depending on the lender), but you will not need this insurance for federal student loans, which are released once the borrower dies. (We will be covering student loans and life insurance in a later post.)

Your ex owes child support or alimony.

In instances like this, an insurance policy on your ex may be court-mandated. If you are the individual who owes child support or alimony, you will have to take out a life insurance policy and name your former spouse or your children as beneficiaries. If you are owed either child support or alimony, you may want to go the extra step and take out a life insurance policy on your ex and have your divorce agreement include the cost of the premiums when the support is set, to ensure that he/she does not change the beneficiaries on their policy.

While it is not often necessary to take a life insurance policy out on someone else, it is not as appalling as it sounds and, in some instances, is a good idea to protect your finances.

If you’re looking into this option to protect your business or your assets, be sure to give us a call today! We can help you find the right term or whole life insurance policy to suit your needs.