Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 15, 2021

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First things first, yes, it is possible to buy life insurance for someone other than yourself.

There are really only two reasons why people ask this question. One involves good intentions and the other…not so good.

What are the good reasons? 

Let’s discuss the good reasons first. There are occasions where it makes sense for an individual to purchase life insurance for someone other than themselves.

Perhaps you want to purchase life insurance for your children, which is pretty common nowadays. There is nothing to stop you from doing so, and it could benefit them in the future. Partners can also obtain a policy for each other, since you want to make sure your spouse is covered in the most unfortunate of incidents that happen sometimes.

The phrase ‘key individual’ is another type of life insurance policy where a company will purchase coverage that pays out in the event of the death of a person who the company relies on to stay in business. If losing that person would cause financial burden to the company, they may have a solid case.

For example, large stock trading firms may obtain this type of policy for their highest paid, most important personnel, such as the CEO or the CFO.

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Smaller companies may also purchase this coverage for a similar reason. For example, a company that employs only one person as part of their team, who plays an integral part in their business would likely close their doors in the event that person dies unexpectedly. And the company may suffer extreme loss of income while they search to replace the key individual.

The main concern here, as far as whether or not you can purchase a life insurance policy for someone else, is proving an insurable interest in the person’s life. Meaning you would have to demonstrate how the loss of this person’s life would have a direct negative effect on your financial safety, as evidenced in the examples outlined above. Partners in business or life, the process of purchasing life insurance coverage is generally done for genuine reasons.

However, the concept of insurable interest is a great segue into the seedier side of this topic.

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What are some of the bad reasons? 

The idea of obtaining a life insurance policy for someone else, or worse, someone obtaining one on you, may be a novel topic of discussion, even though the odds of the policy being issued are astronomical. Why would someone want to do this? The payments. Money can be such a driving factor, some people will do silly things in order to obtain it.

There are a few aspects of a life insurance policy that make gaining money off of someone else a long shot.

First, we touch on insurable interest again. You would have a hard time convincing a life insurance company to issue a policy for someone whose life is in no way connected to your financial well-being.

The second hurdle to obtaining a policy for someone other than yourself is that most polices require the person whose death is being insured against to undergo a battery of health tests. There need to be underlying health issues or a steadily worsening health condition for it to even be considered. If the target is in excellent health, that’s going to raise a red flag.

It would certainly raise another red flag to the unwary individual when they were asked to donate blood and urine for analysis, as well as potentially having to undergo some sort of physical or stress test. It’d definitely be a surprise if someone showed up to their home unannounced to ask for these things.

Finally, and this would be the trickiest part of all, the individual who is being insured typically has to sign the application. You would have a tough time obtaining that signature if all of the other necessary criteria were met and you were trying to pull a scam of some sort. Yes, unfortunately, insurance fraud includes people trying to get a life insurance payout off someone who is in no way unhealthy.

Even if you were able to trick the insurance company and the individual to the point where a policy is issued, perhaps by obtaining a simple issue or guaranteed issue policy, you can certainly expect to have to explain yourself to them, and the police, before being issued your check in the event of their death.

That about covers the good and bad surrounding the application process; life insurance money is nothing to play around with. The advice you should leave here with is that if you have proper reason to fear for your finances because of the death of a loved one or a business partner, that’s understandable. However, if you have nefarious reasons for wanting to take out a life policy on someone, don’t do it. It could negatively impact your life in ways that you would never recover from. That being said, if you’re in the market for a legitimate life insurance policy for someone other than yourself, get insurance quotes online or visit an independent insurance agent.

Read more: Top 10 life insurance companies.