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Home Insurance

Can You Buy Life Insurance On Someone Else?

Adeola Adegoke by Adeola Adegoke
November 26, 2022
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Jake’s next-door neighbor, Jonah, is an adventurous guy who loves extreme sports and traveling. He has decided to go on a solo snowmobile expedition to the North Pole. When Jake heard of it, he joked that he would buy life insurance on Jonah’s life.

You might have seen this happen in movies. A scenario where you can take out life insurance on someone else shortly before they meet an untimely end.

However, you can only do that if you are related to the person, have a business relationship with them, or generally have an insurable interest in that person. In fact, you would also need the person’s consent to do so.

So, if you are wondering if you can buy life insurance on someone else, the simple answer is YES, provided you have an insurable interest in that person.

Can You Buy Life Insurance on Someone Else?

Short answer Yes! However, you must be aware of two main components when buying life insurance on someone else’s life, whether whole or term life insurance.

No insurance company would allow you to take out an insurance policy on someone else without meeting these criteria.

1. Insurable Interest

A person or entity is said to have an insurable interest in another person when the death or loss of that person would cause a financial loss or other hardships to that person or entity.

In most cases, a person is known to have an insurable interest in his own life, as well as in the life of: 

  • His children or grandchildren;
  • His spouse;
  • His business partner or key employee;
  • Any person whom you wholly or partially depend on for support or education

When applying for life insurance on someone else, you will have to prove that you will suffer a financial loss if the person dies. It is also sometimes called ‘financial/pecuniary  interest.’

You will need to prove to the insurance company that you won’t gain financially from the person’s death and that their death would financially burden you.

Insurance companies do not want to encourage people to shorten anyone’s life, so they want to see that you benefit from the person being alive.

2. Consent

To take out an insurance policy on someone else, you must get the person’s (the life-insured) consent. The person will have to be involved in the entire application process.

In most cases, you will need the person’s signature on the final paperwork and cooperation as the person may need to undergo medical underwriting, which involves answering personal health questions.

Some insurance policies from some insurance companies will require the insured to take a life insurance medical exam.

Even if you are taking care of the contractual details of the insurance policy and paying the premiums, you will need the insured’s consent as they have to be part of the application process. The only exception to this rule is when you buy life insurance for children.

Who Can You Buy Life Insurance On

There are a few situations where it makes sense to take out life insurance on someone else. You may need to take out a life insurance policy on any of these persons in the following situations.

1. Your Parents

Certain situations will make you want to buy a life insurance policy on your parents.

  • You might want to buy an insurance policy to cover their funeral costs and final expenses if they don’t have an insurance policy of their own.
  • If you and your parents are co-signer of any loans, an insurance policy on your parents can help you pay off the loan when they die.
  • You could buy a policy to pay for any long-term care your parents might need.

2. Your Spouse

There are a few reasons why you might want to take out a life insurance policy on your spouse.

  • If you are the breadwinner, you can buy an insurance policy on your spouse if they have no source of income, and you will pay for the policy.

However, you cannot buy a life insurance policy on your spouse without their consent. They must go through the underwriting process and append their signature to the final paperwork.

3. Your Business Partner

If you own a business with your partner, you could take out a life insurance policy on your business partner.

You can use this policy to fund the buy-sell agreement when one partner dies. If your partner dies, you will receive a death benefit payout that you can use to buy your deceased partner’s share of the business from their surviving spouse or family.

4. A Key Employee

As a business owner, you can take out a key employee insurance on your employee who contributes significantly to your business.

If your employee dies, the policy will help you cover your business liabilities while finding a new employee to fill the role. In this case, your business is the policyholder, buys and pays for the premium, and is the beneficiary.

However, you need the employee’s consent to take out a life insurance policy on them.

5. Your Child/Grandchild

As a parent, grandparent, or legal guardian, you can buy life insurance on your children or grandchildren.

This insurance policy will protect your child’s insurability even if they develop a health condition or take up a dangerous hobby in future.

Life insurance for children also builds a cash value which can be transferred to your children and accessed later in their life. And if the child should die prematurely, the policy’s payout can cover their final expenses.

It’s pretty easy to buy life insurance on children as they do not have to consent, sign the policy, or undergo a medical exam.

6. Your Former Spouse

You can buy life insurance policy on your former spouse especially if you are getting spousal supports or child supports from them.

This support payment is a valid insurable interest, as your former spouse’s death would cause a financial loss to you.

In some cases, the court even orders the purchase of a life insurance policy on your former spouse.

7. Your Sibling

If your sibling is caring for either or both of your parents, you have an insurable interest on them and can purchase a life insurance policy on them.

You can buy an insurance policy on your sibling and name yourself as the beneficiary, so you get the death benefit payout if your sibling dies.

You can use the death benefit payout to cover the cost of your parents’ care and hire someone to care for them.

Final Thoughts on Buying Life Insurance on Someone Else

Buying life insurance on someone else is possible as long as there is an insurable interest and the insured consents to it.

Suppose you need further advice on buying a life insurance policy for your parents, child, siblings, or business associate. In that case, you can contact me to determine if this is the right move for your situation before buying the policy.

I have a list of the best life insurance companies in Canada that will offer you the best policies at the best rates.

FAQs on Buying Life Insurance on Someone Else

Is it illegal to take out life insurance on someone else?

No. It’s absolutely legal to own a life insurance on someone else. You are good to go if you get the insured’s consent and insurable interest.

Can someone take a life insurance policy out on me without my knowledge?

No. No one can take a life insurance policy out on you with your consent or participation in the application process. After all, they need you for the medicals and to prove they rely on you financially.

What happens when the insurable interest disappears?

Suppose the relationship between you and the insured changes, and the insurable interest is no longer there after the insurance policy is issued. In that case, the insurance policy is still considered to be valid.

Author Profile
Adeola Adegoke
Co-founder/CEO at The SEO Hive Digital Solutions | Website

Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.

Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.

The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.

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