This is a sponsored guest post.
Usually when talking about life insurance, we’re talking about protecting our families by insuring ourselves. If you have a partner or kids, it’s always a good idea to check out term life insurance quotes to see about covering yourself.
There are situations when you may want to get a life insurance policy for someone other than yourself. In the UK, taking out insurance for someone else is perfectly legal. But the law is quite restrictive.
For one, whether you can open a life policy on someone depends on your relationship with that person. And secondly, that person must consent and participate in the application process.
In this quick guide, we detail everything you need to know when buying life insurance for someone else.
Can You Buy Life Insurance For Anyone?
Insurers won’t let you take out a life plan on a stranger or someone you just know casually. To get a policy for someone else, you should have some relationship with that person.
Additionally, the relationship should pass the “insurable interest” test. Insurable interest means you can prove that you would suffer a loss if the person passes away—whether it’s a financial loss or an emotional loss.
To put it bluntly, betting against another person’s life is unethical. That’s why insurers want you to demonstrate that you benefit from that person being alive.
Furthermore, the person you want to buy the policy for must consent to it and sign the application form. This gives insurers permission to collect and process data, such as previous health records, prescription drug records, and motor vehicle records.
Under some circumstances, the insurance company may request that the person undergoes a life insurance medical exam as part of the application process.
Who Can You Buy Life Insurance For?
There are a few scenarios when you can take out life insurance for someone else. Consider taking out a policy on someone else if you have the following relationships, provided you’d suffer a loss should they pass away:
Spouse
Getting life insurance for a spouse who contributes significantly to the family’s annual turnover is a smart move. However, even if your spouse earns less, you might want to insure them off a debt they owe, such as mortgage, credit card debts, kid’s education, and more. For example, a wife may decide to take out life insurance for dads for her husband or the other way round.
Parents
You may wish to take out an insurance policy on your parents. If they don’t have policies of their own, buying them policies can help with:
- Final expenses
- Paying off a debt that you co-signed for
- Paying estate taxes (survivorship life insurance)
Additionally, there are times when one or both parents cannot live on their own due to aging. Hence, they can use the funds from a life insurance policy to help cover the cost of an assisted living facility or nursing home.
Business partners
Life insurance is a great tool for business partners to fund the buy-sell agreement. Think of it as a prenup that spells out what happens to the business if one of the partners passes away, becomes disabled, or quits.
Each partner takes out a life insurance policy on the other and names themselves as beneficiaries. If one passes away, the surviving partner receives a death benefit payout.
The surviving partner uses the payout to buy the late partner’s share of the business. The money can go to the deceased partner’s surviving spouse, children, or other family members.
Buying life insurance for a business partner ensures business continuity in the event of the partner’s passing. The late partner’s heirs cease having control over the business.
How to buy life insurance for someone else
There are a few common steps you should take when buying life insurance for someone else. Here’s how to go about it:
Select a policy
The first decision involves choosing the type of insurance policy. Term life insurance is cheaper and provides coverage for a specified period of time. Whole of Life cover is more expensive and stays in effect for as long as the premiums are paid.
Get a quote
The next step is to shop around for quotes from multiple life insurance providers. Insurance premium rates and terms could vary from one insurer to another. Therefore, obtaining multiple quotes helps you find the best price and terms.
Get consent
When it’s time to fill out the life insurance application, get permission from the person you intend to insure. Insurance companies will need them to sign a consent form before approving the policy. Buying a policy for someone else without their signed consent is considered insurance fraud.
Pass an insurable interest test
Finally, prove to the insurance company that you would truly suffer a loss if the person you are insuring passes away. You cannot own a life insurance policy on someone else unless you have an insurable interest in them.
Need help buying a life insurance policy for someone else? Consult a financial advisor to figure out if this is the right move for your situation.
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Hi there! I am Emily Evert, the owner of Emily Reviews. I am 28 and live in a small town in Michigan with my boyfriend Ryan and our two pugs. I have a large family and I adore my nieces and nephews. I love reading memoirs, and learning about child development and psychology. I love watching The Game of Thrones, Teen Mom, Sister Wives and Veep. I like listening to Jason Isbell, John Prine, and other alt-country or Americana music. I created Emily Reviews as a creative outlet to share my life and the products that I love with others.
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