However, there are occasions when someone may want to purchase a life insurance policy for someone other than themselves. While there are options available to do this, there are also guidelines that need to be followed before purchasing a policy on someone else.
Can you take out life insurance on anyone - Generally, it is impossible to take out a life insurance policy against someone that has no relation with you. Betting against someone’s life is not only unethical, but also does not make financial sense for life insurance providers.
However - it is possible to take out life insurance on someone else only if there is some relationship between you, such as a friend, business partner, spouse or parent - and only if the person being insured consents to a life insurance policy being taken out on them.
Life insurance companies also require that the relationship passes the “insurable interest” test, which means demonstrating that the insured’s death would have an adverse impact on the person who wants to purchase the policy.
A: Purchasing life insurance for anyone follows the same basic steps.
Select a type of life insurance policy - The first decision is whether permanent or temporary coverage is necessary. Term Life Insurance is cheaper than Permanent Life Insurance and is a temporary solution for a period of time such as 10, 20 or 30 years. Whole Life, Endowment or Investment-linked Insurance, which are types of permanent life insurance, stay in effect as long as the premiums are paid and build a cash value amount that can also be used to borrow or withdraw money.
Getting Quotation - No matter what kind of life insurance coverage is needed, it’s a good idea to shop around for quotes from several life insurance carriers to find the best price and terms. The same type of coverage could vary in price, coverage, benefits, exclusion and limitations from one carrier to another.
Get permission - Once it’s time to apply, the next step is to get permission from the person you plan on insuring. They will need to sign a consent form and likely undergo a medical exam before the policy is approved. Even if a policy that doesn’t require a medical exam is selected, failing to obtain signed consent from the person you’re buying the policy for is considered insurance fraud.
B: When to buy life insurance for someone else - Some circumstances make purchasing a life insurance policy on someone else a smart financial decision.
Financially protect family members - For people who are raising children together and have assets such as a home, a life insurance policy could make up for the lost income if one of them passes away. A life insurance policy on an aging parent could provide cash to pay off debts left behind or cover burial costs. And families with a higher net worth may want to consider life insurance to pay any estate taxes.
Ensure business continuity - The death of partners or key employees can sometimes endanger a company. While a life insurance payout may not replace the individual’s skills and knowledge, it could provide capital to recruit a replacement or cover critical costs while the business adjusts.
Guaranteed future coverage - Some families have a history of genetic conditions and chronic illnesses (such as diabetes or heart disease) that make obtaining life insurance coverage difficult. A permanent life insurance policy for a child or young adult that is purchased while they are still healthy guarantees coverage, even if they’re diagnosed with a health condition in the future.urance.
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