But to do so, certain criteria must be met. One of which is that you’ll need to prove you have an insurable interest in the insured person before the life insurance company will approve the application. You also need their consent. This means that you can’t take out a life insurance policy on just anyone. Learn more about the process of buying a life insurance policy on someone else and how it differs from buying one on yourself.
Insurable Interest Requirement
To get a life insurance policy on someone else, you must prove to the insurance provider that you have an insurable interest in the person whose life you’re insuring. This often means that you would suffer a financial loss if the insured person dies. For example, if their death would result in a loss of income for you, then you might have an insurable interest. Insurable interest also may apply if you have a close legal or blood relationship with someone, such as by marriage or birth. Since you must have an insurable interest in the insured, you can’t arbitrarily get a life insurance policy on anyone you want. Otherwise, someone might take out a life insurance policy on anyone they think would die before them and name themselves as the beneficiary. Here are a few examples of how insurable interest can play out:
Insurable interest in yourself. Everyone has an insurable interest in their own life and can take out a policy in which they’re the insured.Insurable interest in your spouse. When you’re married, you’re related by law and generally considered to have an insurable interest in your spouse.Insurable interest in parents. You may have an insurable interest in your parents and be able to take out a policy on them if you’re an adult. But you’ll probably need to prove to the insurance company that an insurable interest exists. Insurable interest in a business partner. Business partners often have an insurable interest in each other. If anything happens to either, the business could experience disruption that could lead to financial loss. Insurers frequently issue insurance policies for one business owner on the other.
If you have an insurable interest in someone who is averse to buying their own policy, you might be able to buy a policy on them instead. But you’ll need their consent to do so. Considering their reasons for not wanting to buy a policy could make it easier to get that consent.
Why People Don’t Buy Life Insurance
Although life insurance can be a crucial financial safety net for their family members, millions of Americans still have no coverage. People cite different reasons for skipping coverage. Among them:
Cost concerns. Many Americans are still without life insurance in part because of the cost burden. Depending on your policy, premium payments can be expensive. According to a survey by Bestow, an online term life insurance company, 74% of respondents without life insurance said they would be more likely to purchase a policy if they were more affordable. Application process. In some cases, the application process for life insurance can be time-consuming. You need to find an agent, select the right policy for you, fill out paperwork, and perhaps even get a medical exam. It may take weeks to complete the application process and might even feel intrusive. Confusion. Understanding your choices in life insurance policies, including the various types of policies, available benefits, and contract terms can be confusing. About 24% of respondents in a survey by Bestow cited confusion as their reason for not having life insurance.
Addressing Life Insurance Concerns
Most people agree that life insurance is important—it lets them live confidently, knowing that their dependents are protected. But if the person you want to get insurance for has one or more of the concerns above, here are some ideas to help address those concerns so you (and they) can get the coverage you need.
Cost Concerns
Term life insurance is the most affordable type of coverage. By suggesting this type of policy, you may be able to assuage cost concerns. Hopefully, your offer to purchase the policy, and thereby pay premiums, will also help. Term life insurance provides coverage for a limited period, such as 10 to 30 years. For most policies, your premiums and coverage are consistent. Keep in mind that the longer you wait to apply for life insurance, the more expensive it gets. On the other hand, if the goal is to get a return on investment, consider permanent life insurance, such as whole or universal life insurance. These policies, which are more expensive than term policies, are designed to last until the insured person dies. They have an internal cash value “account” that grows on a tax-deferred basis from which you can withdraw money and take out policy loans. You can even use it as collateral for another type of loan.
Lengthy or Intrusive Application Process
Many people remain without life insurance coverage because of what can sometimes be a lengthy or intrusive application process. One way to try to make the process easier is by opting for no-exam life insurance. These policies use a type of underwriting that includes extensive medical questions and data gathering instead of a medical exam. This could be an ideal solution if the person you want to insure doesn’t want to undergo a medical examination. Guaranteed issue policies are a type of life insurance that requires no exam or health questions. It’s especially suitable for people who are older and in poor health, which means it’s not suitable for people who are younger and reasonably healthy. Guaranteed issue policies are a type of permanent policy with a modest death benefit (usually no more than $25,000) designed to cover expenses like funeral costs.
Alternatives to Life Insurance
If insuring the life of someone you depend on proves difficult, consider other options that don’t necessarily need another person’s consent or proof of insurable interest. One option is self-funding through an annuity—an insurance contract that can guarantee a stream of income for a specific period of time or for life. To prepare for a potential future income need, you would buy what’s referred to as a deferred annuity—or one that delays making payments for a period of time, usually, but not necessarily, until you reach retirement age. This allows your money to grow on a tax-deferred basis until you receive it as income. In any case, it’s often best to talk with an estate planner or other financial professional who can help devise solutions based on your specific circumstances. Having a properly drafted trust with yourself as a named beneficiary could be one way to mitigate future losses, for example.
