Consumers do not always know the rules of life insurance and think they can get life insurance on anybody.
The truth is that the life insurance industry has strict rules on who can be the owner of a life insurance policy if the insured is a separate person.
Can you get life insurance on anybody? No, you cannot get life insurance on anybody. You can, however, get life insurance on other people if you have an insurable interest in their lives, for example, young children or key employees to your business.
Term life insurance is more affordable than ever before due to the increased life expectancy of human beings.
You can use our free rate comparison tool to view the rates of the best life insurance companies in the United States.
With rates this low, it is not surprising that people would want to protect their entire family with life insurance, but it must be appropriately structured to be compliant with regulation and law.
Our article will go in-depth on how to get life insurance on the people you care about.
Feel free to skip ahead to the sections that interest you the most:
Why Can’t You Get Life Insurance on Anybody?
In order to get life insurance on someone else, you need to show the life insurance company that you have an insurable interest in that person’s life.
It is not hard to prove an insurable interest in your family members or key employees of your business, but it needs to be there.
Life insurance is designed to protect your beneficiaries financially if the insured dies.
Simply put, you need to have something to lose in order to insure the person.
For example, I cannot take out a life insurance policy on my neighbor because I would suffer no financial loss if he passed away.
Theoretically, the justification for life insurance is for the insured to be alive and contributing financially to your well being when you have an insurable interest.
For example, if a spouse dies, you will lose income to your household.
You can also make the argument that someone’s death will cause you a financial loss, such as paying final expenses and burial costs for your children if they die.
However, owning life insurance on someone with no insurable interest is considered highly unethical because you would have a higher financial incentive for them to be dead rather than alive.
The life insurance companies and the government do not want to create perverse incentives around people’s life expectancy or to turn life insurance into an “alternative investment.”
As a result, you must prove insurable interest to get life insurance on someone else.
When Can You Get Life Insurance on Other People?
If you have an insurable interest in the person, you can get life insurance on their life.
For example, you can get life insurance on your mom if you are responsible for her final expenses or are dependent on her income.
There are advantages to owning life insurance on your parents as opposed to your parents owning the policy themselves.
If you own the policy on your parents, you can ensure the premium payments are made consistently and protect the death benefit from Medicaid clawbacks in some scenarios.
It is not uncommon for individuals to buy life insurance on their spouses as well.
If your spouse is a homemaker, clients often want to own a life insurance policy to provide death benefits to cover childcare, clean the house, etc. while the primary income earner works.
Taking out a life insurance policy on your spouse for mortgage protection life insurance to pay off your home if they die is a common motivation we see.
Businesses also may want to take out life insurance on the partners of the business or key employees.
If your business partner dies, it can be devastating to the day-to-day operations of the business.
Additionally, you may inherit a business partner that knows little about how to run your business if your partner dies.
As a result, business partners will often take out life insurance buy-sell agreements to buy out their partner’s share of the business from their heirs.
Finally, you can take out life insurance on your children as a parent, most commonly as a minor, but possibly as an adult if you are dependent on their income.
When you take out a policy on a minor child, you typically need to have double the amount of life insurance coverage that your child has.
Can You Get Life Insurance on Someone Without Them Knowing?
You cannot get life insurance on someone without them knowing in most scenarios.
One exception to this rule is parents getting life insurance on their minor child.
Minor children are not of legal age to enter into a life insurance contract, so a parental guardian will have to make that decision on their behalf.
Once the child is older, you can transfer ownership of their life insurance policy to the child and let them take over the payments.
However, in almost every other scenario owner, insured, and payor can be different people on a life insurance policy in specific circumstances, but all three people need to be aware of the policy and sign off on it.
As high-risk life insurance brokers, we sometimes see scenarios where spouses disagree on whether or not they should buy life insurance.
One spouse may want to buy life insurance on the other spouse anyway without them knowing.
However, the insured of the policy would need to be aware of the life insurance and sign the application giving the life insurance company permission to underwrite their health.
Sometimes, working with a no-exam life insurance company can help a reluctant insured agree to get life insurance since the application process is less of a hassle.
Final Thoughts on if You Can Get Life Insurance on Anybody
Thank you for reading our article on can you get life insurance on anybody.
Ultimately, you cannot get life insurance on anybody, but you can get life insurance on people who you have an insurable interest in.
Both life insurance companies and the government do not want to create perverse incentives where you’d have a financial incentive for the person to be dead instead of alive.
When you would suffer financially if a person died, life insurance protects you from the loss of financial security, removing the conflict of interest.
Therefore, it is possible and ethical to purchase life insurance on your spouse, children, parents, or business partners in specific scenarios to protect yourself from financial loss when they die.
For example, if you’re responsible for paying your parent’s final expenses when they pass, it would be reasonable to want to buy a final expense life insurance policy on them.
Life insurance is very affordable, so cost shouldn’t be an obstacle to protecting your loved ones.
Take a look for yourself in our free rate comparison tool that showcases over 25 of the best life insurance companies on the market today.