Disclosure: You cannot apply for or take out a policy on anyone else’s behalf through Fabric. We currently do not support the option for the owner of the policy to be anyone other than the insured.
As a mother of two young kids, I spend my entire day handling things for other people. Want milk in the green cup? I got it. Full diaper? Crawl on over to me. I make the decisions, from scheduling playdates and pediatrician visits to deciding what’s for dinner.
So when I heard it’s possible to take out a life insurance policy to cover someone else (and name yourself as the life insurance beneficiary), my first thought was, “Sure, add it to the list.” If I’m handling so much for other people anyway, I may as well keep an eye on someone else’s life insurance, too. Right?
Don’t get me wrong: There are specific situations where it can be smart to take on a life insurance bill to cover someone else. But before you jump to add this to a long to-do list, get the facts on when this is beneficial and when it’s more hassle than it’s worth.
First things first: If no one’s talked through life insurance basics with you, you’re in good company.
Kevin Mahoney, a Certified Financial Planner who specializes in working with young families, says, “Generally speaking, I find that young people don’t have a great intro to insurance and how it works.”
Life insurance is supposed to replace your share of the financial load if you pass away. Most of the time, financial advisors will ask you to add up debts like mortgage, normal household bills and the cost of future goals like college for the kids. The total that you would’ve contributed toward all these goals is a good estimate of your life insurance coverage needs.
When you take out a life insurance policy on someone else, you’re taking on the responsibility of monthly premiums to cover another person. You own the policy, so you control who is the beneficiary (typically, you’d choose yourself).
You’re pretty restricted on who you can purchase life insurance for. That’s because insurance companies require you to have an “insurable interest” in whoever you want to cover.
“With insurable interest, you need to have proof that you would suffer financially if the person were no longer alive. There has to be that connection that there will be financial consequences,” Mahoney says.
If paying your aging parents’ final expenses would be financially tough for you, that could be insurable interest. Same goes if your sibling has put you down as a preferred guardian for your nieces or nephews in their will. You could also have insurable interest in a business partner.
Life insurance companies should tell you what kind of proof they need to verify insurable interest. Generally, expect to hear that the person you’re covering needs to be a close family member, romantic partner or business partner.
In other words, you can’t just take out an insurance policy on Taylor Swift (or, you know, someone who’s just an acquaintance in your life) and name yourself as a beneficiary.
As a first step, you’ll need to confirm that the company offering insurance coverage can support taking out a policy on someone else’s behalf. In addition, anytime you purchase life insurance, the insured person needs to know. You need written consent from them to complete the application.
Taking out a life insurance policy without telling the person you’re insuring is also illegal. It’s a form of insurance fraud. You don’t want your good intentions to get you into legal trouble, so communicate with the person you want to cover every step of the way!
Note that if you were to apply for a policy on behalf of another individual, Fabric cannot accept the application as valid and will need to withdraw the application, or in the event that a policy becomes issued, the policy would need to be rescinded. That’s because Fabric does not currently support policies in which the owner is anyone other than the insured.
Life insurance decisions should tie back to your overall financial planning. If the benefits don’t outweigh the drawbacks, don’t purchase a policy just for the sake of checking a preparedness box.
The pros of buying life insurance for someone else are:
More control: You get to name or change the beneficiary. You are the one in charge of making sure premiums stay up to date so the policy doesn’t lapse.
Peace of mind: If a loved one’s death would cause you financial trouble, and the person is unable or unwilling to purchase their own policy, you might feel more at ease holding a policy yourself.
The main cons are:
Premium costs: Mahoney thinks buying insurance for family members is kind of like buying a bigger house in case a loved one needs to crash, or co-signing loans. “The intentions are very good, but people aren’t paying attention to how much this is having an impact on their finances.” Make sure you can cover your own bills, and have enough left over to live the life you want (and cover your own life insurance policy), before you take on expenses for someone else.
Extra hassle: You’re probably juggling a lot of responsibilities and commitments already, especially if you’ve got kids. Adding another bill (and coordinating application paperwork with someone else) only makes sense if your financial situation will be more secure as a result.
Mahoney’s advice to families usually starts with, “Buy exactly what you need and nothing more.” Here are a few signs that extra life insurance could be on your “exactly what you need” list.
A divorce court judge may order you and your ex-spouse to hold life insurance with the other listed as beneficiary. Sometimes, they rule this way to make sure there’s a contingency plan to financially support the kids if something happened to either of you.
If your ex is financially irresponsible or you suspect they’d change the beneficiary despite court orders, you might decide it’s simpler to control the policy yourself.
Talk to your attorney before making any move to buy insurance to cover your ex. Your lawyer can advise you on whether this is a good idea, and whether you can petition the court to add the cost of premiums to alimony payments.
Note: Theoretically, you could take out a policy on your current spouse if they’re open to insurance but don’t want to be bothered with managing their own policy. They’d still need to be involved in the application process, though, and premiums still come from your household’s finances.
You also would have to deal with that extra step of demonstrating insurable interest. Since you could probably just take over the job of paying the bill when it arrives, there’s not as much advantage in being the official policyholder for your spouse’s coverage. Here’s a guide to shopping for life insurance as a couple.
When you co-sign a loan, you’re agreeing to take responsibility for the debt if the other person doesn’t pay. Maybe you were eager to help a friend or family member get through school or buy a first car. But you don’t want your good deed haunting you later.
A life insurance policy that covers the amount and duration of the loan could give you peace of mind. That way you know that if your loved one dies, you won’t end up in debt. Ideally, the person who asked you to co-sign will be open to taking out a policy themselves. If they can’t, taking out a policy to cover them is a decent alternative.
Hopefully, your family is all in great health and will stay that way for decades to come. But if you’re likely to be on the hook for someone’s final expenses, and that person doesn’t have insurance or savings in place, you might find yourself dealing with funeral bills on top of the emotional blow. A life insurance policy could cover the amount you’d need to make final arrangements.
Most of the time, buying life insurance for yourself and your partner is enough to help protect you against a sudden loss. In a few specific circumstances, covering someone else could give you some extra security. Just like with treats or screen time, the secret is balance: Know when another life insurance policy adds real peace of mind, and when to “let it go” and focus on enjoying family life.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
This material is designed to provide general information on the subjects covered. It is not, however, intended to provide specific financial advice or to serve as the basis for any decisions. Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.
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Accidental Death Insurance policies (Form VL-ADH1 with state variations where applicable) and Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT (all states except NY), and by The Penn Insurance and Annuity Company of New York (NY only). Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
All sample pricing is based on a 25-year old F in Excellent health for the coverage amount shown. All samples are for a 10-year term policy, unless otherwise stated. Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT. Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
A.M. Best uses letter grades ranging from A++, the highest, to F, companies in liquidation. Vantis Life’s A+ (Superior) rating, which was reaffirmed in April 2020, ranks the second highest out of 16 rankings. An insurer’s financial strength rating represents an opinion by the issuing agency regarding the ability of an insurance company to meet its financial obligations to its policyholders and contract holders and not a statement of fact or recommendation to purchase, sell or hold any security, policy or contract. These ratings do not imply approval of our products and do not reflect any indication of their performance. For more information about a particular rating or rating agency, please visit the website of the relevant agency.
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