You already know that life insurance coverage can be an excellent way to protect your family’s future, but it could also make sense to insure someone other than yourself. But, can you buy life insurance for someone else?
You can get life insurance on someone else, but you can’t take out a policy on just anyone. It depends on your relationship with the person you want to insure, but there are situations when it makes sense to pay for a life insurance policy for someone other than yourself.
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Can You Get Life Insurance on Anyone?
You can get life insurance on someone else — but not on anyone. A typical life insurance policy has three parties: the policyholder, the insured and the beneficiaries. Usually, the policyholder and insured are the same person — most people buy life insurance for themselves.
Two conditions you must meet before you can get life insurance for someone else:
- You have an insurable interest.
- You get their permission.
As you can see, purchasing life insurance for someone else requires some cooperation between you and the person you want to insure.
How to Get Life Insurance for Someone Else
It’s easier than you might think to prove an insurable interest and get permission. However, not all policies are available for this purpose. Some companies require the policy owner and the insured to be the same person.
Step 1: Prove You Have an Insurable Interest
An insurable interest is sort of the same as a financial interest. You have an insurable interest in someone if their death would cause a financial burden or other hardship for you.
For example, suppose you or your children depend on your former spouse for income, childcare or other needs. In that case, you could buy a life insurance policy where you are the policyholder, your former spouse is the insured party, and you or your children are the beneficiaries.
Step 2: Get Permission
Once you’ve established an insurable interest, the second step is to get permission from the person you want to insure. Even if you’re the one footing the bill for the policy, they’ll need to sign a form to give consent. They also need to cooperate with the application process, including getting a medical exam if necessary.
Who Can You Buy Life Insurance For?
Life insurance is a popular way to protect your family members. But under some circumstances, it makes solid financial sense to purchase life insurance on someone else.
Your Spouse or Life Partner
When it comes to purchasing life insurance for a spouse or partner, some people make the mistake of insuring only the primary breadwinner. But insuring a lesser-earning or stay-at-home partner can offer peace of mind, too.
Income isn’t the only way to contribute to a household — these individuals may spend a significant amount of time providing services like childcare, cooking, shopping, overseeing repairs and more.
If they pass away unexpectedly, you may need to hire someone to cover these tasks and services. A life insurance payout could alleviate some of that financial burden.
Your Parents
Many people shopping for life insurance for their parents are concerned about the costs of final expenses falling on them. A life insurance policy can help. It can lessen the financial impact by paying for the funeral, burial and other end-of-life costs.
Your Minor Child
At first glance, you may not think it makes sense to take out a life insurance policy on a minor child. After all, you probably don’t rely on them for any sort of financial well-being.
But burial expenses could be a financial burden. According to a Natural Funeral Directors Association study, the median cost of a funeral is $7,848. A small policy could help cover those costs and might make sense for parents who have children with increased mortality risk.
"I generally advise against insuring the life of a child. Their mortality risk is typically quite low and it's unlikely to present a critical financial burden for most families. It is usually better value to instead start a savings plan for the child, like a savings account or a 529 education savings plan."
Your Adult Child
A life insurance policy for your adult child could make sense. For example, suppose you cosigned a private student loan, mortgage or auto loan. If your child passed away, you could still be on the hook for repaying the entire loan amount in many instances. If your adult child dies prematurely, a life insurance policy could protect you from those debts.
However, every lender handles this situation differently, so it would be worthwhile to check your child’s lender’s policy on how they handle the death or permanent disability of the borrower — some cancel the debt, some may pursue it with the cosigner and some may pursue it with the estate of the deceased.
Your Sibling
It’s unlikely that you could prove an insurable interest in your brother or sister. However, it’s possible. For example, perhaps your sister is caring for your aging parents. If she were to pass away, replacing her caretaker responsibilities could be a financial hardship for you.
Your Former Spouse
You may have legally separated or divorced your former spouse, but you could still have an insurable interest. For example, if they’re paying you spousal support, a judge can require life insurance as part of the divorce judgment.
Another instance is if they provide income, childcare or other support for your children. In that case, life insurance could be worth the cost — just name yourself or your children as beneficiaries.
Your Business Partner
You may not have thought about getting life insurance on your business partner. But consider how their passing might impact you financially, and you can see how key person insurance could make sense.
The policy would be a business expense, and you’d name the business as the beneficiary. It can protect the company’s future if an owner, partner, CEO or other major player passes away.
Get Help Buying Life Insurance
So, can you buy life insurance for someone else? The answer is it depends on the specifics of your situation. Generally, it’s possible if you can prove an insurable interest and get the other person’s permission.
Life insurance is often seen as complex, but it doesn’t have to be. The Ultimate Life Insurance Calculator takes the guesswork out of purchasing a policy. We’ll match you with the right policy to fit your needs and never recommend more coverage than you need, saving you money from day one.
