Life insurance is a wise investment for more than just you. You may decide to take out a life insurance policy on someone else like a family member or business partner, whose passing would cause financial hardship for you or your family. However, not every life insurance that isn’t designated in your name is permitted.
The ability to take out life insurance on someone else’s life depends on whether you have a financial interest in their life and if they approve of it. Continue reading to learn more about these requirements as well as advice and insights if you intend to take out life insurance for someone else.
Can You Take Out a Life Insurance Policy on Someone Else
Yes, you can take out a life insurance policy on someone else only with their permission and are well informed about it. However, without the policyholder’s agreement and an insurable interest, you are unable to purchase life insurance for them.
Insurable interest is available when you can convince an insurance provider that you would suffer financial hardships if the person for whom you are seeking coverage passes away. In other words, you have to prove that you are depending on the other individual financially and that you would face challenges if they passed away.
When Can You Get a Life Insurance Policy on Someone Else
Getting life insurance is especially done to protect your loved ones financially if you or the insured party dies. You should consider obtaining life insurance for a primary caregiver to protect the family from financial difficulties in case of their death. Unexpected work leave for caregiving or hiring additional help can lead to financial difficulties. This may include elderly family members or staying at home with young children.
Additionally, if you’re at risk of losing your company without a strong employee or business partner, it might be advisable to consider obtaining a life insurance policy. The funds can be utilized to acquire a stake in the company or to hire a new employee with a specific skill set.
Who Can You Get a Life Insurance Policy on Someone Else
If you have any of the subsequent relationships, you might be able to get a life insurance policy on someone else, provided that their death would cause you to lose money or experience financial hardship:
- Business partner.
- Infants.
- Youth.
- Previous partner or spouse.
- Grandparent.
- Minor (under 18 years old).
- Parent.
- Sibling.
- Spouse or companion in life.
Life insurance is not available if the individual cannot explain how their earning affects their own life. For instance, you cannot buy insurance for a friend whose financial situation doesn’t affect your life or overall well-being. Remember that obtaining a life insurance policy on someone requires their consent.
Reasons to Take Out a Life Insurance Policy on Someone Else
There are many different reasons why people buy life insurance for other people. All cases, however, revolve around safeguarding oneself against monetary loss should the policyholder suffer an unforeseen injury. The following are some reasons for taking out a life insurance policy for another person:
Dependent on someone else for financial support
Buying life insurance from a parent who gives you financial sponsorship or alimony from a former spouse can give you peace of mind that your requirements will be met when they pass away.
You have your grandchildren
For the benefit of their grandchildren, some parents purchase life insurance for the lives of their grown children. It’s possible that their adult children don’t have the money to purchase life insurance, so the grandparents can choose to purchase a policy to ensure their grandchildren are covered.
You are an entrepreneur
You can get life insurance on a business colleague if you are an entrepreneur. In addition, this might make it possible for you to purchase their stake in the business without having to take on debt.
Purchasing life insurance for someone else makes sense in many circumstances. Furthermore, before beginning your policy shopping, you must research the ethical and legal considerations.
How to Get a Life Insurance Policy on Someone Else
You must first demonstrate your insurable interest in obtaining a life insurance policy for another person. After designating your insurable interest, you must verify that the person you are trying to insure has allowed you. Throughout the whole application process, the individual for whom the life insurance policy is planned must be available.
After that, you can complete an application form that illustrates your coverage and the operation of the policy. The life insurance application may inquire about the policy’s purpose, desired coverage amount, and the beneficiary’s identity. The individual receiving insurance may avoid undergoing a medical examination by answering a series of questions. The requirements change according to the various options and levels. The requirements might also vary depending on the state in which one resides.