We’ve all seen this story in a movie. A character dies mysteriously, and while investigating, the police discover that someone close to the deceased recently took out a life insurance policy on them. (Cue eerie music and dramatic crash of lightning.)
It’s an open-and-shut plot device in a crime flick, but in real life, you can’t go around buying life insurance on just anybody. In fact, usually, the only person you can insure is yourself. That’s not to say applying for life insurance isn’t a team sport. In fact, it’s probably a best practice to work together with a loved one and seek input as you search for the right coverage.
When you’ve found the right policy and are ready to apply, though, it’s usually time for the insured to take the lead.
What’s stopping an individual from buying a policy on someone else?
Life insurance protects the people who depend on you financially. If you died with a policy in force, the proceeds of your policy could help your family with the mortgage, childcare, day-to-day living expenses, and burial expenses.
That’s how it’s supposed to work, but what’s stopping an individual from buying a policy to insure whomever they want? Why couldn’t you buy a policy on, say, your child’s preschool teacher? In short, it’s against the law. It’s illegal for an insurance company to sell life insurance to someone without the presence of insurable interest. Insurable interest exists when you would suffer financially from the death of the insured person.
Your child’s preschool teacher may be a wonderful, big-hearted person whose loss would be traumatic for your family, but that doesn’t mean you’d suffer financially.
And then there’s the need for consent of the insured and acknowledgment that the health and financial information provided is accurate. You can’t buy a policy on someone without getting permission from them. So, with apologies to Hollywood, buying insurance on someone else is usually a non-starter in the real world.
Times when it’s tempting to insure another individual
Most people who buy life insurance never have to worry about legal terms such as insurable interest and consent. That’s because the majority of buyers are insuring themselves, and they name a partner or child as a beneficiary.
For most families, the discussion about life insurance ends when both partners think they have the right amount of coverage in force for their needs – although people should still revisit their coverage periodically to see if they still have the “right amount”. They pay the premiums and know that, in return, their loved ones have a financial safety net in place if they were to die way too soon.
Not every family works the same way, though, and you may wonder how to encourage someone for whom you have an insurable interest to buy a policy. Here are a few situations where that idea might come up.
For a spouse or partner
When you have coverage, it’s natural to want your spouse to get coverage, too. In fact, in many cases, it’s necessary for both partners to have coverage.
Even if your partner doesn’t earn income, think about the other ways you depend on him or her financially. Does your partner take care of the kids all day? If so, you may need to pay for childcare if your partner died unexpectedly. What if your family’s health insurance is connected to your partner’s job? How would you replace that? The proceeds of life insurance coverage can be used to address needs like those.
But what if your partner is busy at work and putting off buying coverage? Since it was so easy to get coverage for yourself, applying for a policy on behalf of your partner would be simple enough, too, right?
Not exactly! You should show your partner just how easy applying can be by opening up the laptop and going to havelife.com. Then you can help your spouse how to fill out the application because it requires in-depth lifestyle and health information. It’s important that all of this information is presented factually to the insurance company. Additionally, in many cases, the person being insured will need to take a medical exam to finalize coverage. And, there’s no way to do that for another person.
If your partner is too busy to get the process started, you can get the ball rolling yourself. Since you know your partner’s age and basic health condition, start by getting an estimate for how much they would be paying each month for coverage.
For a child with co-signed debt
More and more college students rely on loans to pay for higher education. The average graduate leaves campus with more than $30,000 in debt. If you have co-signed on your child’s college debt, you may have wondered how you’d pay if the unthinkable happened and your child died. This is especially true if your child took out private student loans which, unlike federal student loans, may not be forgiven if the borrower dies, or if you have co-signed on your adult child’s mortgage or auto loans.
Term life insurance is a common and efficient way to address this concern. You child could apply for enough coverage to pay off the debt in the event of his or her death, allowing you to grieve your loss without also having to worry about the huge bills coming due. It’s such a simple solution that you may have considered taking out a term life policy on your child yourself. You’d need your child’s full cooperation since the application process requires personal health and financial information.
It’s easier to encourage your child to get term life coverage for at least as long as the debt is a threat to your financial security. If your child hasn’t gotten around to getting coverage and you’re afraid he or she may never make it happen, keep urging them to do so. Sit down together at the computer or with a mobile device. It’s easier than ever to get coverage since startups such as online life insurance agency Haven Life has made it possible to apply for coverage, issued by leading insurer MassMutual, easily online. Additionally, coverage of student loans is typically very affordable since the amount needed is lower, and the insured is young and healthy. For example, a healthy 25-year-old woman can buy a 20-year, $100,000 Haven Term policy from MassMutual for $8.25 per month.
Consider “buying a life insurance policy” just another life skill that you’re passing along to the next generation.
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For a business partner
If you’ve started a company with a business partner, your personal finances may be intertwined with them to some degree. If your business partner died and you couldn’t pay off the business loans, you and your family could suffer, mainly if you’ve put up your own personal property as collateral.
Term life coverage could help keep things rolling while your business recovered from losing your partner. That’s why business partners often buy term life policies naming one another, or the business itself, as the beneficiary.
Before applying for coverage, find out how much money would be needed to overcome the challenges your partner’s death would create. Be sure your plan at least considers business debts, especially if you have personal property as collateral. For details, consult an attorney who is familiar with the business partnership rules in your state.
But what if your partner is too busy to apply for coverage? Could you apply for your partner?
Again, say it with us, the underwriting process is personal. You may have known your business partner since elementary school. You may have been through a lot together over the years as your business has grown. But you still probably don’t know your partner’s family health history and other personal details that underwriters will need to know. Plus, not all insurers would allow you to apply on behalf of your partner so you may limit yourself to companies that do not offer the best rates.
Invite, encourage, insist: it’s the right thing to do
If you’d like someone else to have life insurance coverage and have even thought about getting a policy on that person yourself, then you already know that insurance can give you peace of mind in a world full of uncertainty.
It’s your job to share that knowledge with the person you’d like to be insured. Let he or she know that not only can you get a quote online, but with a life insurance agency like Haven Life, you can actually apply online too. And get a decision on coverage immediately. You no longer have to wait weeks for underwriters to decide whether you qualify and how much you’ll pay.
It’s so easy that answers like “I haven’t had time to apply” and “Maybe next week” are less valid than ever. If there’s someone in your life whose death would impact you financially, they owe it to you to apply for coverage. So remind them, encourage them, help them. Keep “apply for term life insurance” on the to-do list each week until it’s taken care of. When it’s all done, and their coverage is in place, celebrate that the future has become just a little less uncertain. You’ve earned it.
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Haven Term is a Term Life Insurance Policy (ICC15DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Haven Life Insurance Agency, LLC. Not all riders are available in all states. Our Agency license number in California is 0K71922 and in Arkansas, 100139527.