Can you take out life insurance on anyone you want?
Do you need permission to get life insurance on someone? Or can you take out a policy on anyone you want? Unfortunately for the movie plot, there are rules.
You can take out a life insurance policy on another person, but not just anyone, and not without their knowledge. Even with their permission, you can only take out a life insurance policy on someone whose death would impact you financially. That's called insurable interest, which we discuss below.
Taking out life insurance on someone else requires that the insured person go through the application process.
The process of applying for life insurance makes it difficult to take life insurance out on someone without their knowledge,” says Brian Bayerle, senior actuary at the American Council of Life Insurers.
For most life insurance policies, the application process involves:
- Filling out an application
- A medical exam
- The insured person’s signature
Some policies only require a signature, says attorney Ryan Stump of Randall & Stump, PLLC, which frequently represents clients facing insurance fraud and other criminal charges related to life insurance.
“Such policies can be taken out illegally by someone forging a signature and not informing the person who is the subject of the insurance policy," Stump says.
Still, insurable interest will need to be shown to get the policy issued with you as the beneficiary.
What is insurable interest?
Having an insurable interest in someone means if they die, it would be a financial hardship on that person. Taking life insurance out on someone else and naming yourself as the beneficiary requires you to prove that their death would impact you directly.
“Put simply, this means that this person’s death would adversely affect you,” says Bayerle.
An example of insurable interest is a stay-at-home parent without income named as the beneficiary on a life insurance policy for their working spouse. Insurable interest can work in less obvious ways, however. On the other side of the above example, a stay-at-home parent’s death would impact the breadwinner financially as well, due to the work they do that would then become an expense. Childcare, for example, would become an expense for the parent left behind.
Who can you legally buy life insurance for?
As mentioned before, you can only take out a life insurance policy on someone else if you have an insurable interest in that person. You’ll still need consent to take out a life insurance policy on any of these people.
Here are some examples of people you can legally take out life insurance on and why:
Spouse. It’s possible for both the breadwinner and a spouse with no income to show insurable interest in each other, as discussed above. The loss of a spouse has an adverse effect either way.
Child. Life insurance can be purchased by a parent or guardian on a minor without their consent. However, if the child is 18 or older, you will need permission from them. In this case, insurable interest can be shown by the need to pay final expenses as well as time away from work to grieve.
Business partner. Because the death of a business partner would adversely affect the business and by extension, the livelihood of any partners, insurable interest exists.
Parents. If you can show that their death would cause financial hardship to you, such as the inability to pay their final expenses, you can take out an insurance policy on your parents.
You may wonder, “Can I get life insurance on my boyfriend or girlfriend?” Yes, but again, only if you can show insurable interest. If you live together and have shared finances, you can likely be named as a beneficiary on their life insurance policy.
Remember that you can’t take out life insurance on a spouse, a parent, or anyone else without their knowledge.
How to take out a life insurance policy on someone else
You’ll first need to make sure it’s someone who is eligible to take out a life insurance policy, and that you can be named as the beneficiary. With that settled, there are a few steps to follow:
- Decide on the type of policy and choose an insurance company.
- Fill out the application.
- Complete a medical exam, if the policy requires one.
- Pay the required premium.
Can I cancel a life insurance policy someone has on me?
No, you typically can’t cancel a life insurance policy someone has on you. The person who took out the policy owns it and is the only one who can cancel or change it.
However, you may see if the person will transfer ownership to you. For instance, this might happen if your parents took out a life insurance policy on you when you were a child.
If someone has taken out a life insurance policy on you without your knowledge, however, you can open an insurance fraud investigation. Contact the insurance company and your state’s department of insurance.
How do I find out if someone has taken out life insurance in my name?
There are a few ways to determine if there’s a fraudulent life insurance policy on you.
- Pay attention to marketing or educational materials in the mail from insurance companies you don’t know. A reference or policy number on the materials might be a sign of a fraudulent policy.
- Watch your bank account for any unauthorized payments to a life insurance company. Payments to the insurer may appear in your account if a family member perpetuates this crime or you're the victim of identity theft.
- Look through personal documents for anything from a life insurance company. If your spouse was offered group life insurance through their employer, for example, it's possible they could have insured you without your knowledge.
- Check the Medical Information Bureau's (MIB) website to find out if there's a secret life insurance policy in your name. MIB houses files on consumers who have applied individually for life or health insurance in the last seven years.
What to do if you find out a policy exists on your life
If you discover a life insurance policy on you, the first step is to work with the insurance company to resolve the issue. If they're uncooperative, contact the police and your state insurance department.
Insurance fraud is a serious crime. Penalties include jail, probation, or a significant fine.
"Depending on the depth of information that the perpetrator provided, they could also be on the hook for identity theft, wire fraud, or mail fraud," Stump says. "If the action involves people in different states or transactions across state lines, it could even be a federal offense. This would result in time in federal prison and additional fines."
Secret life insurance policies are rare, but this type of insurance fraud does happen. Protect yourself by staying alert for signs of fraud and reading everything you sign carefully.
