The purpose of life insurance is to provide financial protection in the unfortunate instance of death. It is a popular decision to purchase insurance on another person, especially if the insurer is affected financially by the passing.
In the instance of taking insurance out on someone else, there is only one requirement – grounds for an insurable interest. Insurable interest describes a situation whereby it is within your best interest for another individual to be alive, either for monetary or emotional reasons.
A precaution for insurable interest is to ascertain that the death of an insured person does not signify personal gain for the policyholder. There needs to be proof that the death of the insured would negatively impact the policyholder financially.
In addition, the insured individual needs to give consent before a policy can be taken out for them. This consent is important to ensure that there is no intentional harm caused. The only exception to this is when parents purchase a life insurance policy for their child that is still a minor.
What relationships are grounds for insurable interest?
An immediate family member such as a spouse, child, parent, sibling, grandchild or grandparent is typically approved for insurable interest. Unmarried couples may be liable for insurable interest with proof of joint assets and wills. There needs to be a bond of affection and love between the insurer and the insured.
A creditor who is owed money can take out a life insurance policy on another individual up to the amount owed to them due to an insurable interest. In this instance, the creditor needs the consent of the person to be insured.
A business relationship is another situation that has grounds for insurable interest if proved to be in the best interest of the insurer that the insured stays alive. These relationships can include business partners, major stockholders or key employees of a company.
MiWayLife understands the sensitivity of taking life insurance out for someone else - no matter the relationship. They can be trusted to professionally advise, and guide, on the insurable interest of the relationship.