Here at IBUSA, we’re frequently asked by folks whether or not it is possible to purchase a life insurance policy on someone else.
Now we typically…
Don’t get asked this question by someone who is thinking about purchasing a life insurance policy on their spouse or small child, where the answer to this question seems a bit more intuitive.
This question is usually asked by someone calling in looking to purchase a life insurance policy on their mother or father, or perhaps a sibling, such as an adult brother or sister.
Sometimes, we’ll get a call from someone looking to purchase a life insurance policy on a significant other who they have not “officially married” but do have substantial financial ties to or financial obligations with.
Which is why…
We wanted to take a moment and discuss whether or not it is possible to purchase a life insurance policy on another person and what key factors most of the best life insurance companies will be looking for when making their determination regarding one’s eligibility.
Questions that will be addressed will include:
- Is it possible to purchase a life insurance policy on another person?
- What is “insurable interest,” and how is it determined?
- What is required to demonstrate “consent”?
- What types of policies can an individual purchase on someone else?
- What should I do to help protect my interests throughout this process?
So, without further ado, let’s dive right in!
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Is it possible to purchase a life insurance policy on someone else?
Yes, in many situations, it may be possible to purchase a life insurance policy on another person.
That said, to be able to do so, you will first need to demonstrate that you have an “insurable interest” in this person’s life.
Which means that…
While it is possible to purchase a life insurance policy on another person, it’s not possible to purchase a life insurance policy on just anyone.
What is “insurable interest,” and how is it determined?
Having an “insurable interest” in someone else means that should the person in question die, you would suffer from some FINANCIAL loss.
And this is why you cannot get a life insurance policy on someone without them knowing it.
To clarify, it’s not possible to purchase a life insurance policy on a stranger, or perhaps your favorite celebrity, because if someone you don’t know were to die, you would not suffer any kind of monetary loss.
Now in the case where…
Someone close to you does die, and you can demonstrate that you would be affected financially, most insurance companies will be willing to consider allowing you to purchase a life insurance policy on the person in question.
They would, however, limit the “size” of the policy you are seeking to the approximate amount of financial loss you would incur in the event of the insureds death, based upon certain multiples of income parameters set by the insurance company.
Which means that…
If you have a parent who you are no longer dependent upon financially, it will be difficult (if not impossible) for you to purchase a large life insurance policy on them.
This is because their passing probably won’t cause a major financial “hit” to you.
In cases like these, you may only be able to qualify for a small final expense insurance policy to ensure that upon their death, you would not be burdened with burial costs and/or medical bills.
On the flip side…
If you were seeking to purchase a life insurance policy on a sibling whom you are not financially responsible for, but their death would create a financial burden for you, a life insurance company may consider this risk a valid insurable interest.
A typical example of this is when a sibling dies, leaving you responsible for the care of their school-aged children or perhaps a loan that you co-signed with your brother or sister.
Which then brings us…
To our next hurdle when purchasing a life insurance policy on someone else, which is meeting the requirement of “consent”.
What is required to demonstrate “consent”?
Answering this question can be a bit tricky because each life insurance company is going to have its own rules and regulations with regards to what they need to satisfy this requirement.
Some companies may only require the insured to provide a “verbal consent” over the phone.
In contrast, some insurance companies will insist that the actual insured be the owner of the insurance policy, while simultaneously letting another person be the “payor”.
Within the insurance industry is just one of many factors to consider when deciding what type of policy you ultimately decide to purchase as well as which life insurance company will ultimately be the best for you.
What types of life insurance policies can an individual purchase on someone else?
Once we determine there is an insurable interest and that there is consent, the type of life insurance coverage one can purchase will usually be determined by three significant factors.
The first factor…
That will play a role in determining what type of life insurance an individual will want to purchase will be the amount of life insurance coverage being sought.
For example, are you looking to purchase a small life insurance policy such as a final expense life insurance policy?
Or will you require more coverage than that that, in which case a fully underwritten term or whole life insurance policy may be needed.
The second major factor…
That will come into play will be what kind of insurance is the intended insured able to qualify for?
Things to consider include:
- How old is the proposed insured?
- Do they have any pre-existing medical conditions to speak of?
- Are they currently working now?
And factor three
Even though someone may be willing to allow someone else to purchase a life insurance policy on them doesn’t automatically mean that they are going to be “thrilled” about the whole process.
This means that even though you may have the permission of the intended insured, it doesn’t mean that they are going to be willing to take a medical exam or allow an insurance company to review the medical records.
Which means that…
Regardless of how healthy the proposed insured is, your options may be limited to their willingness to cooperate with the entire process of being approved for coverage.
This is why some folks will specifically seek out many of the no medical exam life insurance policy choices first in an effort to make it as easy as possible for the intended insured to be approved for their insurance.
It’s crucial for the individual seeking to purchase the life insurance policy on another be sure that they don’t sacrifice their own best interests for the sake of the proposed insured.
This brings us to the last topic that we wanted to take a moment and discuss here in this article which is…
What should I do to help protect my interests throughout this process?
Up until now, we’ve pretty much focused on whether or not someone can purchase a life insurance policy on another individual.
What we haven’t spent much time talking about is once it has been determined that one individual can buy a life insurance policy on another, what should the “payor” of this new policy watch out for so that their best interests are protected?
Assuming that you do have an insurable interest on another, what that really means is that if this person were to pass away prematurely, you would suffer from some financial loss.
Which means that if you’re going to go through all the trouble in securing a life insurance policy on another for the sole purpose of avoiding such a loss, you really ought to make sure that this new life insurance policy that your considering purchasing will do precisely that!
Whenever possible you are going to want to make sure that you are the owner of the life insurance policy and/or you become an irrevocable beneficiary of the policy that you are paying for so that you can be sure that nothing about the policy can change without your permission.
The good news is…
That we here at IBUSA have plenty of experience helping folks purchase life insurance policies and understand many of the unique challenges buying life insurance on someone else can pose.
So, when you’re ready, just give us a call so that we can help you find exactly what you’re looking for!