You usually purchase life insurance on yourself to financially protect your loved ones in the event of your death. It’s an affordable way to secure your family’s financial future because the life insurance cost is quite low.
It is also affordable to buy life insurance on someone else, such as a spouse, child, or even business partner. Buying life insurance on someone else is possible as long as you have consent and insurable interest.
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Here we’ll explore exactly what we mean by insurable interest and show you how to buy life insurance on someone else and what it may cost.
Life Insurance and Insurable Interest
Insurable interest means that you would be adversely affected financially if the person who is insured died.
In other words, you cannot purchase life insurance on the stranger you met at the grocery store yesterday. That person has no bearing on your finances. If that person died, you would not be affected financially.
The reasoning behind requiring insurable interest is so that the death of the insured person does not create personal gain for the policyholder. Allowing someone to be able to own life insurance on just about anyone could possibly lead to intentional harm.
As an example, married couples can purchase life insurance on one another because each of their finances, most likely, affects the other.
However, being related to someone does not automatically mean you can buy life insurance on them. To buy life insurance on anyone, even including your very own family members, you would still need to prove that their death would negatively impact your finances.
Similar to how you can’t get life insurance on someone just because you are related to them, there are also occasions in which you can purchase life insurance on someone if you are not related. There are many business relationships that can be financially protected with a life insurance policy. One example is