Can you take out life insurance on someone else?
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Life insurance is typically used to cover your own death and to support your spouse and dependents. But you can also buy life insurance on someone else. Spouses and couples usually have life insurance policies for each other, for example, and grandparents can even purchase life insurance for their grandchildren.
However, you cannot open a life insurance policy for just anyone. There are certain requirements that you will need to meet before you are approved for coverage.
Can you buy life insurance on someone else?
To buy life insurance for someone else – your spouse, your parents, your children or your business partner – you need two things: (1) an insurable interest in their life and (2) their permission.
An insurable interest in someone’s life means you will suffer financially if they die. Since you are not the insured when you purchase life insurance on someone else, you must demonstrate this insurable interest in order to purchase the insurance contract.
According to Mark Williams, CEO of Brokers International, insurable interest is what helps business partners protect their business. For example, if you own a family business with your parents, you would have an insurable interest as business partners.
If it is considered that you have an insurable interest in someone else so that you can purchase life insurance for them, you should speak to their accountant or financial planner about any potential tax implications before purchasing. an insurance policy.
You need the person’s permission for the subscription process
In addition to an insurable interest, you need the person’s permission before you can take out an insurance policy on them. The insurance company will have its own process for proving consent and verifying the identity of the person.
Whenever a person applies for life insurance, their application goes through the underwriting process, where the company determines what insurance risk you represent and what death benefit it will provide. If you are trying to get insurance for someone else, that person has to go through the underwriting process as well.
During the underwriting process, the insurance company will collect information about the person’s health, employment, income, finances, and other personal information. Traditional life insurance policies also require the applicant to undergo a medical examination, which includes taking a blood and urine sample.
Who should buy life insurance from?
Some people don’t like to talk about life insurance because it’s about dealing with mortality. This can be a sensitive topic even if you have a good relationship with your parents, but if you don’t get their permission you can’t buy life insurance on them even if you have an insurable interest.
Some insurers do not allow an adult child to purchase insurance on their aging parents, so you will need to contact several life insurance companies to get their policies and quotes. Life insurance premiums are cheaper when you are younger and in better health. If you’re trying to get life insurance for your parents, expect higher premiums and lower death coverage amounts.
If your parents don’t have life insurance, it might be easier for them to apply for “end-expense” life insurance. The final expenses are also called funeral insurance because the coverage amounts are so low that they basically only cover the funeral and burial costs.
The final expense is guaranteed issue life insurance that does not require a medical examination. According to ColonialPenn, they typically have a two-year waiting period, which means if the policyholder dies within the first two years of coverage, the policy will not be refunded.
Grandchildren, nieces and nephews
According to Prudential Certified Financial Planner and Life Insurance Specialist Barbara Pietrangelo, parents aren’t the ones who usually buy children’s life insurance policies. Instead, the usual ones are the grandparents. She said grandparents use children’s life insurance to give their grandchildren a financial inheritance that can be used for college, a wedding, a house, or the purchase of a first car.
Since minors cannot hold life insurance policies, nor receive payments as minor beneficiaries, the adult is the policy owner and manages the account. Once the child turns 18, they can become the policy owner and withdraw or borrow against the cash value of the policy, as most children’s life insurance policies are insurance- Entire life.
Although grandparents, aunts and uncles can purchase children’s life insurance for their grandchildren, nieces and nephews, they do need parental permission. They will need the child’s social security number and doctor’s information for the insurance purchase process to ensure the child is in good health.
Married couples and domestic partners
You don’t necessarily have to be married to prove an insurable interest, but it is easier to prove an insurable interest through marriage or a business relationship. If you are in a domestic partnership, you will need to demonstrate an insurable interest. This may mean that additional questions and documents are required during the subscription process.
Some couples hold individual life insurance policies, naming their spouse as beneficiary. Others have joint life insurance policies. Individual and joint life insurance policies can be term life insurance policies that expire after a certain time or permanent life insurance policies that never expire.
Whether you choose individual or joint life insurance, keep in mind that problems can arise if a couple divorces. Typically, a policyholder can change beneficiaries, but you may not be able to simply cancel a policy or remove your ex as a beneficiary. It is best to discuss the options available for divorce or legal separation with your agent before signing a life insurance policy.
If you are considering purchasing life insurance for someone else, discuss your life insurance options with your financial planner, accountant, and estate lawyer to make sure you get the best coverage for your needs. And more importantly, get that person’s permission before trying to purchase insurance on them.