Life insurance provides a financial payment to a beneficiary when the covered individual dies. In every situation, the covered individual should want to leave funds behind to meet his or her goals when obtaining this policy. However, state law determines if another person can obtain such a policy. There are a few things to know here before you purchase coverage.
Who Can Take Out a Policy?
The key to remember is that state laws differ significantly on this. Your life insurance agent can provide more information on this for you. However, most states allow it in limited instances. Specifically, you must have an insurable interest in the party. The insurance companies need to know you are someone close to the family before providing this coverage. Here are some examples.
A Parent Taking a Policy Out on a Child
Many times, parents purchase life insurance on their children under the age of 18. This can help pay for any type of burial costs associated with losing the child during their early years. In this case, the parents have an insurance interest. If the child dies, the parents must pay for the final costs.
A Spouse
A spouse can take out a policy on the other spouse. Most of the time, both parties know this policy exists. Coverage aids in the surviving spouse having enough financial protections in place to minimize risks to them if a death occurs. Many life insurance policies cover just one person. However, both people in a marriage should have them, in most cases.
A Business
A business can obtain a type of life insurance. This is key person insurance. It is ideal for upper levels of management or ownership. If this person were not there, the business could struggle or cease to operate. Key person insurance covers an individual and, when that individual dies, the compensation goes to the company. The party is always aware of this type of policy. However, it does not support the family.
Are you considering purchasing a new life insurance policy for a loved one? In some cases, children, aunts, uncles and other people may be able to obtain coverage. The goal is always to determine if the covered party were to die, would the beneficiary suffer monetarily from it? If so, the insurance company may approve the policy. Your agent can provide more specifics for your case.