Life insurance is a wise investment for more than just you. You may 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 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. This write-up will also give 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. 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 demonstrate that you are financially dependent on the other person. You also have to prove that you would suffer if they passed away.
When Can You Take a Life Insurance Policy on Someone Else
Getting life insurance is primarily done to safeguard your loved ones financially if you or the insured party passes away. Life insurance should be considered for a primary caregiver. This is to protect the family from financial difficulties in case of their death. You may experience financial difficulties if you need to take an unexpected leave of absence from work to care for a loved one or hire additional help, such as helping elderly family members or staying at home with young children.
Additionally, it might be wise to get a life insurance policy if you run the risk of losing your company without a crucial employee or business partner. The money can be used to buy out their stake in the company or hire a new employee to replace an individual with a certain skill set.
Who Can You Take Out a Life Insurance Policy on Someone Else
Suppose you have any of the following relationships. In that case, you might be able to purchase 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.
If you cannot show how the other person’s earning potential affects your own life, you are not allowed to take out life insurance on them. For instance, you won’t be allowed to purchase insurance for a friend if their financial situation has no bearing on your life or general 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 justifications for purchasing a life insurance policy on another person:
Dependent on someone else for financial support
Purchasing life insurance on a parent who provides you with financial support or alimony from a former spouse can give you peace of mind that your needs will be met in the event of their passing.
You have your grandchildren
For the benefit of their grandchildren, some parents purchase life insurance on 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 on someone else makes sense in many circumstances. Furthermore, before beginning your policy shopping, you must research the ethical and legal considerations.
How to Take Out a Life Insurance Policy on Someone Else
You must first demonstrate your insurable interest to obtain a life insurance policy for another person. Once you have established your insurable interest, you must demonstrate that the person you are attempting to insure has permitted you. Throughout the entire application process, the individual for whom the life insurance policy is intended must be present.
After that, you can complete an easy-to-understand application form that explains your coverage and the operation of the life insurance 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.
