Who Can You Insure?
Is it possible to buy life insurance for a person who is not your spouse or your child? Yes, it’s possible. As long as you have insurable interest on a person, then you can purchase life insurance for him or her. A person who may suffer loss from someone’s death has an insurable interest on that individual. Without insurable interest, a policy will be void and unenforceable.
One way to find out if you insurable interest on someone is if you rely on that individual for any kind of financial support, or if he or she insures your lifestyle.
Some examples of those with insurable interest would be the following:
• Blood relationships – Parents and their children.
• Marriage – Those joined in matrimony have insurable interest in one another.
• Creditor – Debtor relationships. A creditor can be the beneficiary for an outstanding loan.
• Business relationships – An employer may insure the life on an employee. But after the year 2006, employers are no longer allowed to purchase policies for their employees without the employees’ knowledge.
Anyone has an insurable interest on their life, and that means a person is able to purchase a policy for their self. A person who purchases a policy by their self may name any beneficiary, and that beneficiary does not need to have insurable interest in them.
The main purpose of an insurance policy is to help make up for losses. Allowing someone to collect for a loss that doesn’t even affect them isn’t legal. There’s a possibility that allowing an individual to purchase a policy for a stranger would lead to many mishaps. If someone purchased a policy for an individual he had no connections with, it’s possible that he would also be the one to cause the untimely death, just in order to collect the premium. Additionally, even if they don’t cause the death, they’d also have no incentive to prevent it.
An example of an investigation for insurable interest happened back in 2008. Two women were accused of befriending a pair of homeless men in order to purchase policies for them. The policies were worth millions of dollars. At the death of the two homeless men, these women collected nearly $3 million dollars from the insurance company. Even if these two women didn’t murder the two men, what if they had bought the policies for the strangers in hopes that they would die? These two women had to go to court and prove that insurable interest really did exist.
In the late 1800’s, an old man who was likely to die very soon was bought a policy by a group of men. These men had no connection to him and weren’t going to suffer any financial losses at the time of his death. But since the group estimated that he was going to die soon, they decided to invest life insurance on him. It was possible to do so back then, when there was no law about insurable interest. The old man wasn’t passing on as soon as they expected, and they were starting to spend a lot of money. What they did was they took his life in order to collect the insurance as soon as possible. In the end, they were caught and punished — but would this have happened if the law of insurable interest had already existed? For these very situations, a person may only purchase life insurance for someone they have insurable interest in.