How to Take Out a Life Insurance Policy on a Family Member

iQuanti: There are a few situations in which a person may want to take out a policy for another family member in order to plan for the future. While it's not an everyday occurrence and usually one with plenty of guidelines by insurance companies, it is possible to find the best term life insurance, even for a loved one. 

When to Take Out a Life Insurance Policy On Another Person

While most policies are taken out by an individual in their own name, some circumstances warrant taking one out on someone else. A few scenarios where the decision may be deemed a necessity include: 

• Parents may take out a life insurance policy on their child in order to cover funeral and end-of-life costs. The alternative to a complete life insurance policy for a child is the child rider option. The child rider benefit is an add-on to a parent's established life insurance policy offered by some companies. 
• Parents may choose to take out policies on their adult children in the event that they share finances or debts, and the parent would be unable to pay if the child died. The policy may be justifiable as it can be used to pay off co-signed loans, car payments, and similar financial obligations a child and parent share. 
• Business partners may be able to take out a policy on one another so that in the case of one partner's death, the remaining partner and the business would be able to continue. In the case of family business partners, including parent-children teams or siblings, insurance is also possible though justifiable needs will have to be proven. 

The Legalities of Purchasing Life Insurance Policies for Someone Else

In all of the above scenarios, one may be eligible to take out a policy on another person, but consent from the insured is required. Without explicit approval and cooperation of all parties, the life insurance policy is not valid, regardless of the circumstances.

This means a policy taken out in deceit behind someone's back, such as insuring a business partner without their consent, will render the policy ineffective if approved at all. Not only is it unethical to take a life insurance policy out on another person without their knowledge, but it is also illegal, often qualifying as insurance fraud, and may lead to prosecution. 

Simple Steps to Taking Out a Life Insurance Policy on a Family Member

If all involved parties agree on the purchasing of a life insurance policy, then these steps are useful for beginning the process: 

1. Ensure there is an insurable interest - Before applying for an insurance policy, be sure that there is a justifiable need. Within this, you must be able to prove that the death of a family member will harm you financially, and thus a life insurance plan is necessary. 
2. Receive express consent - Not only is an explicit yes necessary before shopping around for plans, the person being insured may need to consent to a medical examination, speak with the life insurance company, and submit documentation affirming the plan. 
3. Sort out the finer details - Beyond knowing that you want to take out a life insurance policy on a loved one, it's also important to thoroughly consider who the beneficiaries will be. Is it one person or multiple? Who will pay the premium for the policy? What is a reasonable coverage amount? Life insurance companies will not allow someone to be overinsured for more than their value, so it's important to reasonably sort through finances and find a justifiable answer. 
4. Speak with life insurance companies - you may need to shop around for the best term life insurance policy that permits taking out policies on other people without strict stipulations or complications. This can be a lengthy process in finding a company willing to take on the complication, but research is completely necessary.