Can You Take Out a Life Insurance Policy on Someone Else?


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ByMandy Sleight
Edited byRae Osborn
ByMandy Sleight
Edited byRae Osborn

Updated: June 13, 2024

Advertising & Editorial Disclosure

When it comes to life insurance, it's common for individuals to be both the policyholder and the insured. However, it's also possible for the two parties to be different people. If you're considering buying life insurance for someone else, you must meet certain conditions to ensure the arrangement is valid and legal.

Generally, you can take out a life insurance policy on someone else if the following conditions apply:

  • You get the other person's consent to take out life insurance on them.
  • You have proof of insurable interest, which means the other person's death would cause financial hardship in your life.

If you are planning on getting life insurance on someone else, make sure you understand the associated regulations and important considerations.

Key Takeaways

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You can take life insurance out on someone else if you have an insurable interest in the person you want to buy life insurance on.

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You cannot get a life insurance policy on someone without them knowing. The insured must give consent and sign the application for the policy to be approved and issued.

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Buying life insurance for someone else means you become the payor and are responsible for paying the premiums to insure the other person.

How Life Insurance Works

Life insurance serves as a financial safeguard, offering monetary stability to beneficiaries after the insured's passing. This arrangement involves three key roles: the insured, the policyholder and the beneficiary.

  • The Insured: The individual whose life is covered by the policy.
  • The Policyholder: The person who owns the policy and is responsible for premium payments.
  • The Beneficiary: The individual or entity designated to receive the death benefit.

Typically, the insured and the policyholder are the same person. However, there are instances where these roles diverge. For instance, you might find yourself getting life insurance on someone else like a parent, a key business employee or a family member for whom you have an insurable interest. In these cases, the policyholder and the insured are different individuals.

Why Take Out Life Insurance on Someone Else

In most circumstances, people take out life insurance policies on themselves and name someone else as the beneficiary. But you might take out a life insurance policy on someone else for several reasons.

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    Financial protection of family members

    Life insurance is a great way to protect survivors financially. It makes sense to want to protect your family from the financial repercussions of someone’s death. Taking out life insurance on a family member can ensure the surviving relatives won’t be financially devastated if a breadwinner or caregiver passes away.

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    Security of business continuity

    You’ve put in the work to grow your business. The last thing you want is to lose a key person pivotal to its success. Since you can’t predict when a key employee or partner will pass away, getting life insurance on someone else within the business acts as a safety net. It can help ensure the business will continue to thrive if they pass.

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    Guaranteed future insurance coverage

    Anyone without existing life insurance could be one illness away from eliminating their chances of being approved for coverage. By getting life insurance for a minor child or young adult, you can lock in their insurability for life. Not only can you guarantee they’ll have life insurance coverage in the future, but you can also guarantee future coverage increases with a guaranteed insurability rider (if applicable).

Who You Can Take Out a Life Insurance Policy On

Taking out a life insurance policy on someone else is possible as long as you have an insurable interest in them. While life insurance on a family member is the most common, there are other times when buying life insurance for someone else makes sense. Here are some of the people you might have an insurable interest in:

1
Your spouse or life partner

In scenarios in which one spouse or partner is the breadwinner, it's practical to consider buying life insurance on the partner who is the primary breadwinner with the other partner designated as the beneficiary. The breadwinner may choose to get a life insurance policy themselves, but the other spouse can also take out a policy on them if they agree.

The surviving spouse can then use the death benefit as income replacement. Insuring the other partner can also allow the breadwinning survivor to maintain their employment and use the death benefit to pay for child care, home care and other services that the other spouse handled while alive.

2
Your former spouse or life partner

If you depend on your former spouse or partner for child care, income or other financial needs, you can buy life insurance on your ex and name yourself or your children as the beneficiary. Sometimes, a judge will also include a life insurance policy in a court order as part of the divorce settlement in addition to child support, alimony and other financial requirements.

3
Your minor child

Although not typically recommended, grandparents and parents may wish to take out whole life insurance on their grandchild or child. While children can’t provide financial support to their elders, the death benefit can help pay for a funeral and final expenses or provide the ability to grieve without financial hardship.

You could buy a limited pay whole life policy, pay it in full, then gift it to the child as an adult. A better and more cost-effective solution may be adding the child to the parent’s or grandparent’s life insurance policy with a child term rider instead.

4
Your adult child

Parents or grandparents who co-sign on private loans for their children or grandchildren may consider taking out a life insurance policy to pay off loans if the adult child dies prematurely. If there is a family medical history that could affect the adult child’s insurability, a parent or grandparent may wish to buy a policy to start the adult child off until they are financially secure enough to take over ownership and continue paying the policy.

5
Your parents

Adult children may want to take out life insurance on parents to manage potential estate taxes on a substantial inheritance, funeral costs or long-term care expenses. This may also be an option for adult children who co-signed a loan for their parents.

A survivorship life insurance policy is a good way to pay estate taxes. A small final expense or whole life policy can cover funeral costs or final expenses for your parents. Purchasing a life insurance policy with long-term care benefits can also help you shoulder the rising costs of long-term care if needed in the future.

6
Your sibling

If a sibling takes care of one or both parents, taking out a life insurance policy on the sibling may be wise. You can name yourself as the beneficiary and use the proceeds to pay for a caretaker for the parent or parents if your sibling dies before your parent or parents do.

7
Your business partner

If you own a business with a partner, you likely have a buy-sell agreement that dictates what happens to the deceased partner’s share in the business if they die.

Business partners can take out life insurance on each other, naming themselves as the beneficiary. The death benefit proceeds can then be used to buy out the deceased partner’s business share from their surviving family member.

8
A key person in your business

Businesses may have a key employee who is instrumental in keeping the business running successfully. The business can buy key employee life insurance and name the business as the beneficiary. The proceeds can fund recruitment, replace lost sales or protect partnership or shareholder interests.

Regardless of the life insurance buyer's relationship with the insured, there must be an insurable interest to take a life insurance policy out on someone. You cannot get a life insurance policy on someone without them knowing, as they must be part of the process. The proposed insured has to sign the application and participate in the underwriting process for the policy to be approved and issued.

Understanding Insurable Interest

Insurable interest is a foundational concept in life insurance, serving as the legal justification for getting a life insurance policy on someone else. Having an insurable interest in someone else means you would experience hardship or financial loss if they were to die. The policy owner can use the death benefit proceeds to recoup their loss. Demonstrating insurable interest is mandatory to take out life insurance on someone else.

Common scenarios where insurable interest is evident include spousal relationships, parent-child connections and business partnerships. For instance, spouses generally have an insurable interest in each other because they often share financial responsibilities. This makes buying life insurance on a partner reasonable. Similarly, business partners have a vested interest in each other's wellbeing, as the death of one could significantly impact the business.

Proving insurable interest can include verifying both parties' identification and relationship through a phone interview or by producing written documentation like a buy-sell agreement. Even with proof of insurable interest, the proposed insured must consent to and sign the application. A parent-minor-child relationship is typically the only exception since a minor child cannot consent to a life insurance contract.

Who You Can’t Take Out a Life Insurance Policy On

Consent and insurable interest are two fundamental criteria that you must meet to take out a life insurance policy on someone else. Failing to satisfy these conditions means you cannot initiate a life insurance policy on someone else. Here are examples of people you cannot get life insurance for:

  • Strangers: Insuring someone you have no relationship with is not permissible because you lack an insurable interest in their life.
  • Non-Consenting Adults: If an adult does not give their consent, taking out life insurance on them is not legally viable. Consent is a legal requirement that ensures the insured is aware of and agrees to the terms.
  • Minors Without Parental Consent: You cannot take out a life insurance policy on a minor unless you have explicit consent from their parent or guardian. Even if you have an insurable interest, such as being a close relative, parental consent is mandatory.
  • Public Figures: Celebrities and public figures are generally off-limits unless you can prove a direct insurable interest, which is unlikely for most people.

Understanding these limitations can help you navigate the legal landscape of life insurance effectively and ensure that you do not inadvertently step into unethical or illegal territory.

Getting a Life Insurance Policy on Someone Without Consent

Obtaining permission is necessary when taking out a life insurance policy on someone else, so you cannot get life insurance without the proposed insured's knowledge. The proposed insured party must participate in the life insurance process, from signing a consent form as part of the application to verifying medical and personal history during the underwriting process. If a medical exam is required, the proposed insured will have to complete it.

Although life insurance laws can vary by state, every state requires the insured to give consent in writing before the process can begin. The only exception is when a parent is taking out life insurance on a family member who is a minor child. Since a minor cannot consent to a contract, the parent can buy life insurance after proving they are the legal guardian.

Consequences of Getting a Life Insurance Policy on Someone Without Their Consent

Getting life insurance on someone else without their consent is illegal. It's also considered insurance fraud. The consequences of getting life insurance without someone’s knowledge can include:

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    Denied claims

    The insurance company can deny a death benefit claim if it finds the insured did not consent during the application process.

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    Canceled policies

    If the insurer discovers there was no consent while the policy is active, they can cancel the policy without refunding any premiums.

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    Prosecution

    You may be prosecuted for committing insurance fraud, which could mean fines or jail time.

How to Take Out Life Insurance on Someone Else

After getting consent from the person you want to insure, getting a policy is relatively straightforward. Here's how to go about the process:

1
Get consent from the person you want to insure

Getting consent from the proposed insured is the first step. Without consent, you can’t finalize a life insurance policy. Speak with the person you want to insure, explain why you want to take out life insurance on them and ask their permission. Explain the application process and their role, from signing the application to completing a telephone interview and a medical exam (if applicable).

2
Select the type of life insurance policy you’ll get

Calculate the amount of life insurance you will need to buy, then select the type of life insurance that’s best for you. A permanent life insurance policy may be best if you only need a small amount of coverage for final expenses or want access to cash value.

If you need a substantial amount to pay for temporary needs, like replacing income or paying off a mortgage, term life insurance may be the better choice. Comparing life insurance policies, their benefits and drawbacks can help you find the policy type to meet your needs and budget.

3
Get quotes from various life insurance companies

Once you know what type of life insurance policy you need and the amount you’re looking for, it’s time to get quotes. Comparing quotes from several companies can help you find the best policy and price. Each life insurance company has its own rates and policy details, so comparing the same policy type and coverage amount can help identify which carrier will best meet your goals for life insurance.

4
Provide proof of insurable interest

Once you know which life insurance company you want to go with, you can apply. Since you’re taking out life insurance on someone else, you need to prove you have an insurable interest. The agent will ask about your relationship and request documentation to prove it, which may involve both you and the proposed insured providing identification and verifying your relationship.

The proposed insured may have to answer questions about the relationship and the reason you’re taking out life insurance on them. They can also confirm their consent and knowledge of the policy and the coverage amount, which they will also sign off on.

5
Purchase the life insurance policy

Once you have satisfied the insurable interest requirement, you will complete the application and the underwriting process. The proposed insured will have to verify their personal and medical history and may be required to complete a medical exam. After completing the required steps, the insurer will review the entire case and approve or deny the policy. If approved, you will complete the life insurance policy purchase with a premium payment.

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MONEYGEEK DICTIONARY

Stranger-owned life insurance (STOLI) is a life insurance policy owned by a third party, typically an investor, with no insurable interest in the insured. The buyer takes out a life insurance policy on a stranger for investing or speculation purposes rather than financial support as the beneficiary. This type of purchase is illegal and considered insurance fraud.

A STOLI is not the same as a viatical, a life insurance settlement between the insured policy owner and a third party. In this situation, the third party takes over all future premiums and becomes the policy's sole beneficiary. This legal arrangement is typically marketed to policyholders without beneficiaries or with a terminal illness and no living benefits policy rider.

STOLI differs from selling a life insurance policy you own. In some instances, like being unable to afford premium payments or no longer needing the policy, it can make sense to sell a policy. However, there are also possible drawbacks to consider.

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Alternatives to Getting Life Insurance on Someone Else

When taking out a life insurance policy on someone else isn't a viable option, various alternatives can still provide financial security. These alternatives are designed to meet similar objectives without the need to meet the insurable interest requirement.

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    Joint Life Insurance Policies

    These policies cover two individuals, usually spouses or partners, under a single contract. The death benefit is paid out upon the first death, providing financial support for the surviving individual. This option eliminates the need for separate policies and often comes with lower premiums.

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    Life Insurance Riders

    Many life insurance policies offer riders that allow you to add coverage for additional individuals. For example, a child rider can be added to a parent's policy or a spousal rider can extend coverage to a spouse.

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    Investment Avenues

    If life insurance isn't the right fit, investment options like mutual funds or annuities can offer financial protection. It's possible to structure these financial instruments to provide a payout upon certain events, such as the death of the investor, without requiring insurable interest or consent. However, each investment avenue has its own set of rules and conditions.

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    Living Trusts

    Establishing a living trust can also serve as an alternative to taking out life insurance on someone else. Assets placed in a trust can be designated for specific beneficiaries, providing a level of financial security without the need for a life insurance policy.

FAQ: Taking Out a Life Insurance Policy on Someone Else

Sometimes, taking out life insurance on someone else makes sense. Here are answers to the most common questions about when you can take out a life insurance policy on someone else.

Can you get life insurance on anyone?
Can you buy life insurance for someone else?
Can I take out a life insurance policy on another person without their knowledge?
Can I take a life insurance policy out on another person if I lack insurable interest?
Do you need permission to get life insurance on someone?
Can I take life insurance out on my partner?
Can you take out life insurance on a parent?
Is taking out a life insurance policy on someone else a good idea?
Can anyone get life insurance on you?
Can someone take out a life insurance policy on me without my knowledge?
Can I cancel a life insurance policy someone has on me?
How can you take out a life insurance policy on a family member or someone else?

About Mandy Sleight


Mandy Sleight headshot

Mandy Sleight is a licensed property, casualty, life and health insurance agent with 20 years of experience in the industry. She has worked for major insurance companies like State Farm and Nationwide, and most recently as the Operations Coordinator for a startup employee benefits company.

Sleight holds a business administration and management degree from the University of Baltimore and a master's in business administration from Southern New Hampshire University. She uses her vast knowledge of insurance and personal finance to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.