When Can You Buy or Own Life Insurance on Someone
By Shane Flait ©2011
generally buys a life insurance on his life to
supply the death benefit – cash - to his beneficiary
when he dies. But can anyone buy or own life
insurance on someone else’s life. That’s what this
Owning a life
insurance policy represents a value you can use. It
might have a cash value you can access today, or
cash that you can receive only when the person whose
life is insured dies. In the latter case, it may
happen that a beneficiary can receive a large death
benefit after only a few premiums are paid by the
owner when the insured dies; and the owner may be
the beneficiary. Does that make buying life
insurance on someone else’s life a way to gamble to
make money on someone’s death?
only those who can buy life insurance on someone’s
life must be – before buying the insurance - in a
position of loss if the insured person should die.
That means only those who have an ‘insurable
interest’ in a person can buy insurance on that
necessary for you to buy life insurance on someone
Yes, you can
buy, pay the insurance premiums and collect the
death benefit on a life insurance policy that
insures a life that is not your own. But you must
fulfill two conditions for the insurance company to
sell you a policy.
need the consent and participation of the person
whose life is being insured; and second, you need to
provide a reason why YOU will be adversely affected
financially by ‘the insured’s’ death – i.e. an
‘insurable interest’. The only exception to these
is when parents buy life insurance on their minor
So, if you
have nothing to lose from the death of a person,
then you don't really have an "insurable interest"
in his life and, therefore, will only gain from the
death of the insured. If that’s the case then it’s
illegal for an insurance company to sell you a
policy on someone else’s life.
difficult for someone to buy life insurance on you
without you knowing about it. They need your consent
and participation; and they must show an insurable
interest in you. Most often the life insurance
policy requires a medical test on the insured which
Even if that
person purchased some kind of
policy without you knowing about it, he’d be
committing insurance fraud which is a felony and
would void the policy.
an insurable interest in his own life. So he can buy
insurance on himself. He can assign his death
benefit to anyone for whatever reason he wants. But
he can’t commit suicide to produce his death at
least for a couple of years - depending on the
wives can buy life insurance on each other’s life
since by the nature of the marriage contract, each
has living obligations to the other while each is
living. …Or it used to be that way!
a relative doesn’t necessarily create an insurable
interest for you in the life of that relative. You
have to prove you’re adversely affected financially
by that relative’s death. If that relative was
taking care of you or supplying income for you, then
you’d have an insurable interest in preserving those
benefits – or their equivalent - if he died.
company may buy life insurance on its key employee
to recover from the financial setback that his death
can cause to the company – a common occurrence.
transfer ownership of a policy on your life to
someone else for cash?
Yes you can.
If you originally purchased a policy on yourself,
then you can usually transfer the ownership of it or
change the beneficiary to whoever you wish. That’s
because you own the policy and it has a value you
can transfer just like any other thing you own.
course, you had to prove that the initial
beneficiary - perhaps yourself - had an insurable
interest at the time the policy was created. That’s
what makes life settlements legal.
settlements are common today. You can sell your life
insurance policy to someone else for cash. The buyer
puts himself down, then, as the policy beneficiary.
But of course, the buyer paid you cash and is paying
the remaining premiums – if it’s not a paid up
policy – for the policy death benefit when you die.
Once the two
conditions are fulfilled at least initially, the
insurance company is happy – no matter who pays the
premiums - to pay the death benefit to whoever the
Shane Flait is a writer and educator. Get more info