Typically you buy a life insurance policy for yourself, but there are certain circumstances when you may want to buy it for someone else. While there are exceptions to the rule of only buying life insurance for yourself, it’s usually restricted to family members and there are tight restrictions.
You Must Have an Insurable Interest
First, you must prove that you have an insurable interest in the person. In other words, if that person died, would you suffer financial consequences? Another way to look at it is that you ‘need’ this person to stay alive whether for financial or emotional concerns.Get today’s insurance rates.
Typically, insurance companies don’t second-guess when you want to buy a life insurance policy on immediate family members. This could include your spouse, children, parents, or sibling. It may even go as far as grandparents. If you try to extend the insurable interest beyond these blood relatives, you may have more questions to answer.
The one exception to the family rule applies to business partners. If you have a business relationship with someone, they have an insurable interest in you. Insurance companies often let business partners insure one another in order to protect their own interest in the business.
It Might Get Tricky
Now just because you may be able to buy a life insurance policy for a family member or business partner doesn’t mean it will be easy. If the other party isn’t willing to sign the paperwork, you may have your hands full.Shop and compare insurance quotes.
Most policies require some type of medical exam. If you want to keep the premiums affordable, this is your best route. There are guaranteed life insurance policies that don’t require medical exams, but they limit the coverage and the premiums are often unaffordable.
Before you decide to take a policy out on someone else, figure out why you want to do so. Then talk to them about it and see if you can rationalize with them. For example, do you need money to cover burial expenses for your elderly parents? If they stopped paying for their life insurance or they never had any, you may want to pick up coverage so you have money to deal with their final expenses.
While you might be able to get around getting the other party to agree to coverage, many insurance companies frown upon this practice. They don’t want any accusations of fraud to come about down the road. At the very least, they require a signature from the person being insured. Some insurance companies go as far as requiring the party being insured to make the first premium payment, allowing you to take over after the first payment.
If you want to buy a life insurance policy on a family member, you will have to shop around. Be honest with insurance agents as you shop. Let them know what you are trying to do and they will let you know if they have a policy to offer. Not all insurance companies allow this to happen, but those that do will have certain steps you must take to make it happen.Get the right insurance coverage.