Can You Get Life Insurance on Anyone?

Sean McGinn is an assistant director of Product Positioning in the Insurance Solutions department at Northwestern Mutual.

When you think of who would be likely to purchase life insurance, you might think of a parent taking out a policy to benefit their child. Or you might think of a spouse getting a policy covering their husband or wife. But can you get life insurance on anyone, no matter how you know them?

Basics of life insurance

Before we get too far,  it’s probably a good idea to  explain more about how life insurance works. With any life insurance policy there are three key roles. Two of the three are often the same person. The roles are: 

• The owner/payer: Think of this person as the one who controls the policy and who will pay for it over time. This person is often one of the next two people involved in the same policy. 

• The insured: This is the person whose life the insurance covers. If this person dies while the policy is in force, the beneficiary will get the death benefit. 

• The beneficiary: This is the person who’ll get the death benefit if the insured dies while the policy is in effect. The policy can include multiple beneficiaries and contingent, or “backup,” beneficiaries.

If you’re talking about getting life insurance on someone, you’re probably going to be the owner, payer and beneficiary of the policy. The “someone” is the insured.

So, can you get life insurance on anyone, even if you barely know them? The short answer is no. To own life insurance on someone else, you must have an insurable interest on that person.

What is “insurable interest”?

Having an insurable interest in someone means that when the insured person passes away, the beneficiary of the life insurance policy could suffer financially. So you‘ll need an insurable interest in the life of the person that you are insuring. Their death will impact you or your family financially.

Now let’s think about the opposite situation. If you support someone financially, and your passing will lead to financial hardship for them, then they would have insurable interest in you. Likewise, you have an insurable interest in them. But there are other examples as well.

Examples of insurable interest

Not every person in your personal and professional life will be someone you can insure, but there are quite a few people who will automatically fit.

You have an insurable interest in your spouse or partner.

You can get life insurance without a marriage certificate. When you’re married or in a committed relationship, your financial lives are intertwined. This means you have an insurable interest in each other and probably need some amount of life insurance on each other.

Remember that your financial relationship doesn’t end if your marriage does. If you are paying alimony, spousal support or child support to a former partner, they may have insurable interest in your life.

You have an insurable interest in your children—and maybe your parents.

Parents or grandparents often get life insurance on their children and grandchildren. The insurable interest would kick in if the child were to pass away before the parent. Parents could suffer financially should they need to pay for unexpected medical bills, funeral costs and other final expenses. (There are other good reasons to get life insurance on a child. Helping them start life with a solid financial foundation and ensuring they have coverage even if their health changes can significantly benefit their future.)

Now let’s consider adult children who support their parents. For example, elder parents may be retired and living off of Social Security benefits and a small amount of savings. The untimely death of the adult child could lead to a degraded quality of life for the elder parents. Grandparents, siblings, aunts and uncles, and people in similar situations may also claim insurable interest.

You have an insurable interest in a business partner or lender.

If you own a business with another person, you likely have insurable interest in each other. Should something happen to either of you, the business could be significantly disrupted, especially if you’re funding the business. (Life insurance can also come into play when building a business succession plan.)

It’s also possible for a lender to take out a life insurance policy on a borrower. The lender could lose the money should the borrower die before the loan is paid back. 

You have an insurable interest if you co-sign a loan for someone (or vice versa).

The death of a borrower or co-signer can sometimes result in the entire balance of a loan being due immediately. This part of a loan agreement is known as an “acceleration clause.” So it’s typically a good idea to ensure that you have life insurance on anyone who’s named with you on a loan. This is especially true if you won’t have another way to pay the balance of the loan on short notice.

These are some of the most common reasons that an insurable interest exists. While it’s not exhaustive, the list gives you the general idea of the kinds of things that an insurance company will consider. 

Thinking through the list often leads people to wonder whether they need permission to get life insurance on someone else. You’ll need them to sign some forms and share their medical history, so you aren’t able to get life insurance without them knowing. Likewise, someone cannot take out life insurance on you without your permission.

If you’re considering purchasing life insurance, reach out to your Northwestern Mutual financial advisor. They can help you understand whether or not insurable interest exists and help you find the best policy for your needs. They can also review your overall financial plan to look for opportunities and blind spots that you might be overlooking.