While you can name anyone as a beneficiary on your own life insurance policy, you must usually satisfy certain requirements to get a life insurance policy in someone else's name. These requirements are put in place to protect the interests of the insured and insurance companies; otherwise, you would be able to get insurance policies on complete strangers or celebrities and hope for your big payday.
Purpose of Life Insurance
Life insurance provides financial assistance to a beneficiary to help financially compensate him for the loss of the insured party. Funds may be used to pay household expenses, educational expenses or for any other purpose deemed appropriate by the beneficiary.
Most states require that you have an "insurable interest" on the insured. This means you are financially dependent on the person for some reason and you would financially suffer if the person died. This insurable interest may arise because you depend on the person for financial support or education.
Type of Relationship
The relationship you have with the insured is critical in showing that you have an insurable interest. A relationship based on blood or marriage may provide the basis for an insurable interest. If you are the insured's child or spouse, you can probably prove that you depend on the insured for support. If you are the insured and you have a disabled adult child, he also can have a life insurance policy on you. Domestic partners and live-in companions can also have an insurable interest in the insured. If the person has a financial stake in your life, he also has an insurable interest. This includes individuals to whom you owe money, employers or business partners.
Many life insurance companies require a medical exam of the insured to compare against actuary tables and to prevent fraudulent policies. This medical exam may be completed at a health clinic, the insured's job or his home.
Life insurance companies must also access an insured's medical history. According to the Health Insurance Portability and Accountability Act, or HIPAA, the insured must usually sign a written consent form to release his medical records. If an insurance company does not require medical consent, the insured must typically sign off on the policy.
Considerations and Exceptions
State governments regulate the insurance industry, so laws can vary for each state. Due to the signature requirements and medical exams, it would be extremely difficult for a person to take a life insurance policy out on someone else without the insured being aware of it. However, some states allow spouses to take out a life insurance policy on a spouse or minor child 15 or younger without his consent.
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