As part of the coverage couple’s FAQ series, we’ll be answering the question “Who can take out a life insurance policy on someone else?”
Something interesting about this question is we usually get it from those that don’t have life insurance themselves. This isn’t as silly as it sounds though, because uninsured applicants are usually asking for a child or grandchild (because they recognize the value of life insurance but believe they aren’t able to afford it at their stage in life). It’s a paradox that someone can go a lifetime without securing their own protective policy, but then realize its importance so much they’re willing to purchase it for those they love. I guess coming to terms with the reality their family will have to sell their possessions, drain their savings, and start a gofundme when they pass away…motivated them to stop the cycle.
The simplest way to answer this question is to say as long as there’s a family affiliation or direct insurable interest between the application payer and the named insured, that’s all there is to it. If the person the policy is for is over the age 18, they’ll likely have to co-sign the policy indicating their awareness and acceptance of coverage. The person applying for life insurance will of course be funding the policy through lump-sum or monthly contributions, and can name anyone as the beneficiary of the proceeds (including themself).
The only precondition would be if the policy is an insurance type that requires a physical health exam, the potential policy recipient would need to give their OK for the health exam. This exam is a quick, no-cost, convenient common process that’s non-intrusive. The process is very casual: A pre-authorized qualified nurse or clinician will come to the policy recipient’s home or workplace, and within a few minutes have them step on a scale, answer some questions, and depending on the carrier collect a fluid sample.
The typical 3 situations we see policies being purchased for someone else is for a relative who’s a minor, whether newborn or 17. Next would be spouses purchasing coverage for each other. Third would be business partners or executives purchasing policies on investors, directors and managers who are valuable to operations. The general answer is yes, anyone can initiate and pay for a policy for someone else, assuming they meet the 1 or 2 criteria above.
I remember the first time I started to enlarge my scope of understanding in insurance and investments, coming across IULs. It’s important to know IULs aren’t created equal! Over the years there have been newcomers, including one specifically, that truly transformed the market. I was in a meeting with one of the national managers at a carrier, who shared their screen showing me this new IUL (Indexed Universal Life) product before it was released to the public or any other brokerages.
This policy was so amazing because it functioned as BOTH life insurance AND a guaranteed yield (zero loss) investment account that had all the advantages and none of the disadvantages. It was like the silver-bullet we’d all been waiting for. After we did weeks of market research, we confirmed there’s nothing else like it available! The reason I bring that up is because the example shared with me was a parent or grandparent purchasing a IUL policy for a newborn: JUST with the proceeds alone from the policy (without affecting the fixed life insurance fund), they were able to buy their first car, pay for college, pay for a wedding, AND make the full downpayment on their first home. It actually got even better…because upon anticipated retirement, this policy had grown so much that it exceeded their own retirement account at work. Truly amazing.
This was a great question that led into other valuable information. We definitely want to mention, in closing, that while purchasing a policy for someone else is a wise and generous consideration, please look into your options to secure protection for yourself. Just like putting on your oxygen mask before helping those around you in an airplane, if you’re in a vulnerable state, it’s hard to properly help and protect others. If you’ve been turned down before or just *think* you’re uninsurable due to age, health, budget (or all 3)…reach out to us on the Scheduling Page on thecoveragecouple.com, and we can expand on this or any other questions you have.
We commit to conducting deep investigative research for you, and would like for you to reserve time with us, without any cost or obligation. We’ll carefully listen, and then follow up with a proven, practical, custom proposal for your review. HERE is our official invitation to take part in The Coverage Couple Challenge, where EVERYONE WINS. Visit the Scheduling Page at thecoveragecouple.com to see how much we can save you on your existing coverage, or provide a financial risk assessment and needs analysis for your review if you’re unprotected and univested. We hope to hear from you soon, because your life is worth the investment! -Aaron & Sarah, The Coverage Couple