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Buying life insurance on someone else and naming yourself as the beneficiary might sound like the plot of a mystery movie. But taking out a policy on another person is completely legal, and can make good financial sense in some cases.
Whether you can do it depends on two things: your relationship with the person you’re trying to insure, and if you can get their consent.
Can you buy life insurance on someone else?
To buy a policy on someone else, the person who receives the payout must have an "insurable interest" in the person covered by the policy. This means the life insurance beneficiary must face financial loss if the insured person dies.
For example, you can buy a life insurance policy on a family member or business partner. But you can’t take out a life insurance policy on a stranger or even a friend.
You also can’t secretly buy a life insurance policy on someone else.
The person who is being insured must sign the life insurance application. This gives permission for the insurance company to collect data, such as their medical history and hobbies. And the person may need a life insurance medical exam to qualify for a policy. So you can't expect to get coverage without the insured person’s knowledge.
🤓 Nerdy Tip
Insurable interest is a term that sounds complicated, but is quite simple. It means you can prove that you’d suffer financially if a loss were to occur. The idea behind insurable interest is used broadly by insurers, including in home and auto insurance. The benefits of buying coverage on someone else
The main reason to buy the coverage yourself rather than let the other person purchase it is to have control over how the policy is managed.
The buyer, or policyowner:
- Receives statements and is responsible for paying premiums.
- Has authority to name or change the beneficiary on the policy.
- Can take out loans against or surrender the policy for cash if it’s whole life insurance or a permanent policy with cash value.
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Examples of when to buy coverage on another person
Here are a few scenarios where buying life insurance on another person can be worthwhile.
Life insurance for a spouse or partner
It’s not uncommon to take out coverage on a spouse or partner in the form of joint life insurance or separate policies. It may be worth not only insuring the person who is the primary income source for your family, but also any stay-at-home partner or parent who contributes to running the household or providing care for others.
Life insurance for children
You might consider taking out a life insurance policy on your child if they help the household financially in some way. However, most of the time there are better ways to invest money in your child’s financial future than purchasing a stand-alone child life insurance policy.
Life insurance for your parents
You may want to manage your parents’ coverage as they age. Whether you rely on your parents financially or need funds to pay for final expenses, buying life insurance for your parents can help cover costs when they die. As the owner, you would pay for and manage the policy.
Life insurance to cover debts
When a borrower dies, other people that are financially responsible for the loan may be asked to pay the remaining balance immediately. If you are the co-signer on someone else’s loan, you could be on the hook for the rest of the debt if the other borrower dies. Consider buying life insurance on your co-signer if repaying the loan by yourself with little notice would be a hardship.
Life insurance to cover alimony or child support
If you receive alimony or child support, you may want life insurance to replace that money in the event your former partner dies. In many divorces, this is part of the court decree.
Life insurance for business partners
Life insurance can be an important tool for funding a buy-sell agreement. This is why business partners buy life insurance on each other and name themselves as beneficiaries. If one dies, the surviving partner can use the life insurance payout to buy the late partner’s share of the business.
How to take life insurance out on a family member
Use this step-by-step guide to purchase a life insurance policy for a family member, business partner or someone else that you have an insurable interest in.
Step 1: Get consent
You’ll need the consent of the person you’re looking to insure. In the case of buying life insurance policies for children, you’ll have to either be a legal guardian or have consent from one.
Step 2: Fill out an application
You’ll likely need to work directly with the person you’re insuring to complete the application. Because insurers often require personal details and in some cases, a medical exam, be sure that the person you’d like to insure is on board with providing the information you’ll need. This may include:
- Legal name.
- Date of birth or Social Security Number.
- Height, weight and health information.
- Family and personal medical history.
- Occupation and income.
- Primary physician’s name and contact details.
To complete the application, you’ll also need the signature of the insured person.
Step 3: Prove you have an insurable interest
As part of the application process, you’ll be asked to prove you have a financial interest in insuring someone else’s life. Make sure to gather the documentation that might be required.
Step 4: Pay the premiums
Remember that the policy only goes into effect and stays in force if the premiums are paid, so be sure you’ve got the premium payments on your financial radar.
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Frequently Asked Questions
Can someone put a life insurance policy on you without you knowing?
It would be unlikely that someone could take out a life insurance policy without your knowledge. Your consent is required for several parts of the life insurance application, including a signature and permission to collect health information and other data to determine if you qualify for a policy.
Can I pay for someone else’s life insurance?
Life insurers typically don’t care how the premiums are paid, but the ownership of the policy must remain the same. For example, if your parents consent to your help paying their life insurance premiums, you could provide your financial information to process payments but your parents would need to remain the policyholders.
Can I take out life insurance on someone else who is dying?
It’s possible to take out a policy on someone else as long as you can prove you would suffer financially if they were to die. However most insurers won’t offer a new life insurance policy to anyone who has been diagnosed with a terminal illness or is in extremely poor health.
