iQuanti: Many people are familiar with how to buy life insurance for themselves. But what if you want to take out a policy to insure the life of someone else close to you? While you can't take out a life insurance policy on anyone, it's a straightforward process to get a policy for someone you know as long as they're on board. Here's what you need to know about how to buy life insurance for someone else.
What to Consider Before Purchasing Life Insurance for Another Person
There are two key things to consider before you purchase a life insurance policy for someone else:
- Consent: When you choose to take out a policy on someone else, the insurance company has to make sure they are aware of the transaction. The person you're looking to insure will need to answer questions and potentially participate in a medical examination as part of the application process. And that means they'll need to be active and willing participants in the process and grant their consent to have their life insured with you as the beneficiary.
- Insurable interest: You can't take out a life insurance policy on a stranger, neighbor, or casual acquaintance. You must have an insurable interest in that person, which means you can prove that you would be financially impacted by losing that person's life and, therefore, income.
Who Can You Take Out a Life Insurance Policy On?
The primary reason someone takes out a life insurance policy for another person is that the loss of their life would directly financially impact the policyholder. Some common relationships people choose to insure are:
- Spouse: If your spouse is the primary breadwinner for your household or stays at home and provides childcare for kids, their death may cause a significant financial strain. And that means taking out a life insurance policy on your spouse would be a logical move that could provide financial support for your family in their absence.
- Former Spouse: If a former spouse provides financial support following a divorce, such as child support or alimony, there's a vested interest in keeping those payments coming in. Taking out a life insurance policy is one way to ensure you, and potentially your children, would be cared for if something happened to them.
- Business Partner: In business relationships, it's common for partners to take out life insurance policies on each other. The reason for doing so is that the remaining partner can use the policy's payout to keep the business running.
- Child: Buying a life insurance policy for a child is a unique circumstance since it's not primarily used to cover income if the child passes, but rather to protect your child's future insurability. Since policies for children are often whole life as opposed to term life, they often accrue cash value and can be used as financial support for kids as they get older.
- Parents: As parents age, you may consider taking out a life insurance policy to help cover their funeral expenses. And a specific type of life insurance policy, final expense life insurance, is made for that exact purpose. Another consideration for insuring parents is if there's shared debt. A term or whole life policy may be worth considering to cover a parent's share of debt if they pass before it's paid.
- Sibling: A sibling that provides primary care for parents is an asset worth insuring. That's because if your sibling were to pass away, you'd need to hire someone else and pay for services to support your parents.
How to Buy a Life Insurance Policy for Someone Else
The process for buying a life insurance policy for someone else is very similar to buying one for yourself. You'll need to take the following steps.
- Get buy-in from the person you want to insure. Establishing consent from the insured enables you to move forward with purchasing a policy.
- Research policies and insurers. Look for reputable companies and use quote tools to compare rates.
- Submit an application. Many applications can be completed entirely online.
- Adhere to any requirements from the life insurance company. This may include an in-person medical exam or providing documentation.
- Receive approval and begin premium payments. Once you get approved and the policy is active, you'll need to be sure premium payments are covered to guarantee the death benefit will be paid.
- Continue payments and keep beneficiary information up-to-date. You'll continue premium payments for the entire term and make changes to beneficiaries as needed if someone else, like a child, should receive a payout upon the insured's death.
The Bottom Line
There are several instances where buying a life insurance policy for someone else makes sense. But before you fill out an application, be sure to discuss your intentions with the other person, as you'll need consent during the process. As long as the other person is on board with your plans and you can prove insurable interest, you can begin to research providers and apply for a policy to provide financial peace of mind.
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Original Source: How to Buy Life Insurance for Someone Else
