One query that life insurers often hear from potential and current customers is whether someone can take out life insurance on their parents, grandparents, siblings or a close family member.
It’s a complex question and the answer is that yes, legally, you can cover someone else – provided you have an insurable interest. This will also depend on the specific insurer. Before taking out life cover on someone else, there are a few things to keep in mind.
What does insurable interest mean in terms of life insurance?
If you are taking out cover for your husband, for instance, the husband is the ‘life assured.' There has to be a sound reason for covering the life assured, so you have to demonstrate that should the life assured pass away, you would suffer financial consequences or losses.
Other common instances include people taking out life cover on business partners, ex-partners who pay child maintenance, or even key employees from time to time.
Just being close family members does not entitle you to take out life cover on another person, however. The key is still that you have an insurable interest and would suffer a financial loss or hardship if the life assured passed away. For instance, if your parents or grandparents no longer support you financially in any way, you would not be able to take out life cover on them.
It's also worth noting that if you pay for life cover for a loved one, the life assured still has the choice of who the beneficiaries are - which means that they could theoretically choose not to have you as a beneficiary if they wanted.
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Why do life insurance companies insist on you having an insurable interest?
If anyone could take cover out on someone else, the risk would be very high for insurers and life. The stories you hear about in the news where a spouse, child or sibling kills a family member to access life insurance payouts are, thankfully, very rare.
Although it’s hard to think about though, these kinds of incidents do happen, and allowing people to take out cover on another individual (like your parents) as they pleased would likely make these kind of occurrences far more common.
In taking out life insurance, you have to be protecting assets or revenue of some kind, so you can’t just take out life insurance on your great aunt or a family friend in the hope of compensation if something happens. insurance fraud would be rife.
What other options are there?
If you want to take out life insurance on a family member but you don’t have an insurable interest or they don’t want to talk about, there are other options. Our policy allows you to cover family members for a funeral benefit – so if they were to pass away, you would receive an immediate payout to help with funeral expenses.
This means you can cover children, nieces, nephews and elderly relatives who you don’t depend on financially, but who you still want to provide a dignified funeral for in the event that they pass away.
Though it’s a difficult discussion to have, it’s also worthwhile educating the entire family about life insurance and how planning for the unexpected can make sure that the whole family is taken care of should the worst happen. Nobody wants to think about death, but it’s easier to face a difficult conversation now than a lifetime of hardship if a breadwinner were to pass away unexpectedly.
