You see it in detective shows all the time: when looking into the motives of a murder, it’s discovered that the victim’s spouse has taken out a secret life insurance policy on the deceased, and now stands to collect a sizable sum of money.
That makes a great story for a show like this, but is something like that actually possible? Life insurance might be an important part of anyone’s financial planning, but is there ever a scenario where someone can take out a policy on someone else?
If you’ve wondered about the answer to this question, read on to find out more. In this article, we’re going to talk about taking out a policy on someone else, when and where this is possible, and whether or not it’s actually a good idea.
So, Can You Get Life Insurance on Someone Else?
In short, the answer to this question is yes. Of course, it’s a little more complicated than that, but if you’re looking for a quick and easy answer then yes, it is possible to take out a policy on someone else. In this scenario, you own the policy, you pay on the policy and, ultimately, you collect on the policy when the person in question dies.
Now, before you start hatching your plans to cut a brake line or something, you should know that you can’t just randomly take out a policy on anyone without them knowing it. There are a handful of rules that dictate who, exactly, you can take a policy out on, and what has to be done to start the policy. In fact, there are at least two important conditions that have to be met.
How To Take Out a Policy on Someone Else
So, as stated already, you can’t take a policy out on just anyone you wish. The term that applies in this situation is “insurable interest.” When you have an insurable interest on a person, it means that you stand to suffer financially should the person in question pass away. You will have to prove this connection to the insurance company, otherwise, it will most likely deny the policy.
The other condition that has to be met is that of consent. You can’t simply take a policy out on someone else without them knowing about it and agreeing to it. And you’ll have to get that consent in writing on the application before the insurance company will issue that policy.
Depending on the company and the specific policy you’re looking to create, the person might also need to answer a health screening. Also detail some lifestyle information, just like if they were taking out a policy on themselves. Either way, as you can see, the old plot device of taking out a secret policy on a random, rich person simply can not happen.
Who You Can Take a Policy Out On
Keeping the concept of “insurable interest” in mind, there is actually quite a long list of people that would qualify, and whom you should consider taking out a policy on. This list includes, but is not limited to:
It makes sense, really, for married couples to take out life insurance policies on each other. If both of you are responsible for bringing in income, then losing your partner means a significant loss of income. This could lead to having to sell your home or possessions and adjust to a new, lower standard of living.
However, even if you are the sole breadwinner it doesn’t mean that losing your spouse wouldn’t provide a financial burden. If your spouse provides childcare, for example, or handles other duties at home, then losing him or her could mean that now you have to hire someone to take over those responsibilities. An insurance policy could be very helpful in this situation.
As our parents age, we have to start thinking about how we are going to pay for their final expenses. It’s not something anyone wants to think about, but it’s a practical, real situation. Almost all of us find ourselves in at one point or another.
Final expenses can add up quickly. If you aren’t prepared for that inevitability you can quickly find yourself struggling at a time like this. If your parents don’t have a final expense life insurance policy already (and there’s a chance they might already) then taking out a small policy is not a bad idea.
Just like your parents, there’s probably not much chance that the loss of a younger child brings much in the way of a financial burden. Other than the unexpected cost of final expenses. However, as children get older, they do place more of a financial burden on us.
For example, many of our older children take out loans and have us cosign for them. This is especially true if they are making their first forays into the adult world. And buying their first car or house.
If something were to happen to them at this stage, then there is a chance you would be stuck with the remainder of the loan to pay off. A life insurance policy would help out in this case.
Your Business Partner
While we’ve mainly focused on family connections up to this point, there are others who might present an insurable interest that you need to protect. Chief among those are business partners.
When you enter into a business relationship with someone else, it stands to reason that their loss would bring about a big financial hit. In this case, a type of policy called key person insurance can help you to keep your business running. As well as ensure that all of your expenses, such as payroll, are met.
Why You Might Want to Do It
You might think that this is unnecessary. After all, you don’t need to be the one to buy a policy to benefit from it, if you name the beneficiary. Why go through the extra trouble of owning the policy? There are two main reasons,
First, as the policy owner, you have control over who gets the money. You can change the beneficiary at any time. It might be you today, but in the future, it might be in your best interest to name someone else.
Second, as the owner, you are able to take out loans against the policy. Just like you would a policy in your name that you owned. So, if it’s the sort of policy that builds equity, you can consider taking that out, should you need it at some time.
Of course, as the owner, it is also expected that you are the only one making payments on the policy. Even if it is taken out against someone else. So, make sure you are able to afford it before you sign your name!
As you can see, there are many reasons why you might want to consider taking out a life insurance policy on someone else. Of course, there are questions to navigate and scenarios to consider, and it’s best not to do it alone. If you need help, why not contact us today to get the ball rolling? Get your free quote today or call us at 646-216-4199 to get started.