Can You Take Out a Life Insurance Policy on Anyone?

An insurer requires two things before it issues a life insurance policy on another person:

• Insurable interest: You'd suffer a direct financial loss if the person died: lost income, increased debt, business disruption or loss of caregiving you depend on. Without this, no insurer will approve the policy.
• Consent: The person you want to insure must sign the application themselves. They'll need to answer health questions and may need to complete a medical exam. Taking out a policy without their knowledge is insurance fraud.

When you buy life insurance on someone else, you become the policy owner. As the owner, you pay the premiums and control everything: beneficiary designations, coverage amounts and the right to cancel. The person whose life is being insured is called the insured. 

When the insured dies, the death benefit (the amount the policy pays out) goes to whoever you've named as the beneficiary. In most cases, when you buy coverage on another person, you're both the owner and the beneficiary. The insured person signs the application and goes through underwriting (the insurer's health and risk review), but doesn't own the policy.

Without insurable interest and consent, a life insurance application won't be approved. These relationships don't qualify:

• Strangers: You can't insure someone you have no financial relationship with, regardless of whether they agree.
• Non-consenting adults: An adult's explicit consent is a legal requirement. A policy taken out without it isn't valid.
• Minors without parental consent: Insuring a minor requires explicit consent from a parent or guardian, even when an insurable interest exists, such as for a close relative.
• Public figures: You can't insure a celebrity or public figure unless you can document a direct financial relationship, which is rare.

1. Myth: You can insure a friend if they agree. 

   Consent isn't enough on its own. Insurable interest and consent are both required, and they're separate conditions. Friendship alone doesn't create insurable interest. To qualify, you'd need a documented financial relationship: a shared mortgage, a business you co-own or a loan you've both signed. Without that financial dependency, no insurer approves the policy regardless of whether your friend consents.  

2. Myth: A power of attorney lets you sign the life insurance application for someone else.

   It doesn't. Only the insured can sign a life insurance application. Power of attorney grants authority over financial and legal decisions on someone's behalf, but it doesn't extend to life insurance underwriting. The person being insured must sign the application themselves. They may also need to answer health questions directly or complete a medical exam. No agent, attorney-in-fact or family member can substitute their signature.

3. Myth: Insurable interest must exist for the entire life of the policy.

   Most states require insurable interest only at the time the policy is purchased. The policy stays valid even after the financial relationship changes: after a divorce, a business ends or a loan gets paid off. The policy owner doesn't lose coverage because the relationship ended. One thing should change after major life events: beneficiary designations. Update those anytime your financial or family situation changes.

4. Myth: There's no way to know if someone took out a life insurance policy on you. There is. The MIB Group, originally known as Medical Information Bureau, keeps records of life insurance applications submitted in your name. Request your MIB consumer file at https://mib.com/request_your_record.html. If you find an unauthorized application, contact the insurer directly and file a complaint with your state's insurance commissioner.

Buying life insurance on someone else makes the most financial sense in four situations.

Family Income Replacement

A death benefit covers the household's lost income from the primary earner, the remaining mortgage balance and shared debts. It also funds children's future education costs. The right coverage amount is the one that lets the surviving household meet its financial obligations without a sudden change in standard of living.

Business Continuity

Key person insurance covers the financial disruption of losing a critical employee or partner. The death benefit can fund a buy-sell agreement (a pre-arranged plan letting surviving partners buy out the deceased partner's stake) and covers the cost of recruiting and training a replacement. Many small businesses couldn't absorb the full cost of that transition out of operating cash.

Future Insurability

Coverage bought while someone is young and healthy locks in their insurability before any health changes make coverage expensive or unavailable. This matters when the person has a family history of genetic conditions or chronic illness. A life insurance policy issued today stays in force even if the insured's health changes later.

Final Expenses

End-of-life costs average $88,300 in the final year of life, comprising $80,000 in medical expenses and $8,300 for funeral costs, per MoneyGeek's end-of-life cost research. A death benefit covers outstanding medical bills, debts and estate settlement costs (the legal fees involved in distributing someone's assets after they die). Surviving family members don't have to cover those costs out of their own savings.

The first step isn't finding a policy. It's having the consent conversation. The insured person must sign the application and may need to complete a medical exam. No policy goes into effect without their active participation, and no policy is valid without their signature.  Once you have consent, compare quotes from multiple insurers: rates and underwriting requirements vary by carrier.