Understanding Life Insurance Regulations is very important when buying life insurance. When shopping for life insurance, people often assume that if they’re willing to pay for it they will be able to take out any policy, of any size on any person, including themselves. While the insurance shopper does have a significant amount of control when it comes to choosing the policy that will suit them best, there are some regulations that were put in place to protect insurance policy holders.
So, to the question of whether or not it is legal to take out a life insurance policy on someone else, the answer is it depends. Without any type of regulation with regards to whom you can take an insurance policy out on, some people would take policies out on anyone and everyone, giving them motive to kill the insured so that they can receive the policies’ death benefits and cash values. Instead, when purchasing a life insurance policy and naming beneficiaries, you have to be able to prove insurable interest.
When a person dies and their loved ones, business, friends or other relations suffer financially because of their death, that’s insurable interest. While this stipulation is used to prevent people from taking out policies on just anyone, it is legal to take out a life insurance policy on someone else if you can prove that you will suffer financially in the insured’s absence. This means that husbands and wives often take out policies on each other and even children take out insurance policies on their parents.
Family relations aren’t the only people who have a good chance of proving insurable interest and taking out life insurance policies on one another, however. Even business partners will get policies on each other because they can show that should the other partner die, it might be difficult for the business to continue.
If you’re thinking about taking out a life insurance policy on another person, speak to an insurance broker about the steps you will need to take and the rules you will need to follow so that you can be named as the beneficiary of the policy.