Taking out life insurance on someone else's life
There are many reasons why someone would want to take out a life insurance plan on another person's life.
However, that’s only possible if the insurer recognises the relationship between the policy owner and the insured person, as more than just a mutual friendship. The relationship to the other has to be close and/or dependent. This is known as an 'insurable interest' and means that if the insured person dies, their death would affect the policyholder financially. In other words they would be financially worse off as a result of the death of the person insured.
The insurable interest only has to be present at the start of the contract, not necessarily at the time of the loss.
Insurable interest is typically based on monetary interest, and common examples are those between:
- married couples or registered civil partners
- cohabiting couples with joint financial responsibilities (e.g. a mortgage or children)
- business relationships - this could include a joint mortgage or a business loan
- anyone else who is financially dependent on a particular person
If you buy a life insurance policy for yourself, it’s normally assumed that you have unlimited insurable interest in your own life, and can therefore choose anyone as your beneficiary.
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