Is it possible to take out a life insurance policy on someone else? How about without their knowledge/permission?
I’m talking about one of those policies that don’t require a medical exam.
Say I tell the complete truth about the person on the application (weight, past health problems, tobacco use, etc.). Is there anything (law, rule, whatever) that says I can’t insure someone else without their knowledge?
Is there anything, legal wise, that prevents me from doing so?
But… 
Says who? Them?
That cite doesn’t mention any laws. In fact, it cites “assumptions”. I want to know the law.
What if the person I’m talking about is my parent? Their my parent, so I have a vested interest in their living, especially since I still reside in their home. Can I legally bet against their life, without them knowing? Assuming I do nothing to hasten their death, and that I am honest on the application form about their health and lifestyle, can I take a policy out on them without their knowledge, or having them sign anything?
Here’s a simple answer: It’s up to the individual insurance company. Most of the life insurance policies I have examined prohibit this, but who knows, there may be some that don’t.
As a licensed life insurance agent, I will say:
NO.
All the policies I ever sold had blanks for “Signature of insured”. Just for starters, you had to at least take a saliva test with us, so that cut down on the fraud for starters. I suppose you could pose as someone, though. I guess the fraud through this is small enough that it still wasn’t even company policy to ask for photo ID.
Imagine if you could insure the life of your worst enemy without his knowing, then find him standing next to a cliff…
In my neck of the woods this is illegal. I overheard an insurance guy having this very discussion with one of his clients over lunch in a small town a few years back… something to do with some papers they had to sign, and he was making sure the guy knew it was illegal. If you could insure anyone and they had no say, could you not make yourself a millionaire basically overnight? Just take out a policy on everyone you could afford to pay premiums on, and wait. Guarenteed you’ll make a killing (pun intended). Sounds very scummy… walk down a hospital hall, copy down all the ICU patients names, take out policies, and get rich quick. Insurance companies don’t like fraud.
It’s a general rule of English law, and of many countries which derive their law from English law, that you need to have an “insurable interest” in the risk you insure. You can insure your spouse, or your business partner, or your employee, or a range of other people on the grounds that you will foreseeably be financially affected if they die. I know of cases in which the parties to drawn-out complex litigation have insured the life of the judge because, if he dies, the trial will have to start all over again.
But if you have no “insurable interest” at all in somebody’s life, if you are wholly unaffected by his death, then you can’t take out a policy of life assurance. You could possibly make a bet with someone, but that isn’t the same thing.
I don’t know whether this principle has been carried over into the insurance laws of the US.
He speaks the truth. The requirement for an ‘insurable interest’ comes from the Common Law in order to prevent insurance from becoming mere gambling, or worse an incentive to murder.
Careful. You might end up explaining yourself on Edward G. Robinson’s dictaphone.
Of course, nailing Barbara Stanwyck circa 1944 might make it all worthwhile.
Come on… They don’t have actuarians for nothing! Every insurance sold is calculated to earn on average the insurance company more then they pay out… And they’ll will certainly not insure someone who’s on his deathbed, that is why they have medical. It has obviously nothing to do with fraud, more like preventing people from getting other people into ‘accidents’.
Life insurance is a scam for most people. Better save up your money instead.
But this is a different concept. You could conceivably try and take insurance on your spouse (which is definately an insurable interest) but without their knowledge. I suppose that if the contract required the signature of the insurer, there is no way around it but is it legal to have a contract that has no such requirement?
I do recall a Wall Street Journal article (last 8 months) where many companies would take out insurance poilicies on their employees’ without their knowledge. I believe that this is currently frowned upon, but am unfamiliar with the legaility of it.
The key phrase is “insurable interest”. Google it, in conjunction to the jurisdiction of interest
http://law.freeadvice.com/insurance_law/business_insurance/insurable_interests.htm
http://www.investorwords.com/2509/insurable_interest.html
If you wish to argue that an insurance company should make a profit (on average) on their premium, whether the beneficiary has insurable interest or not, please explain how they would not make more profit by not paying claims without an insurable interest. What legitimate reason, beyond profiteering (possibily from illicit acts) would a reasonable person have to buy a policy on a stranger?
Insurable interest covers quite a large range. Shareholders can take out insurance on corporate officers, for example. You are correct that truly random insurance policies should be (on average) a losing proposition, the laws on life insurance, nonetheless, don’t provide for a do-it-yourself lottery. Insurance is meant for specific purposes; it’s not a “death pool” - that’s gambling, which may not be legal in all jurisdictions, regardless of insurance regulations.
Yes, it’s legal, and it does happen. Suppose a defined benefit pension plan pays out a benefit of $100,000 on death while in employment. It’s quite common for the plan trustees to effect group life assurance on the members of the plan such that, if any of them die, the trustees will receive $100,000. On the other hand, it’s quite common for a plan not to effect this insurance, but simply carry the risk and pay any claims out of its reserves.
The plan members generally do not know whether the plan trustees have effected this insurance or not (unless they ask).
On the other hand, I would think it’s quite unusual to effect individual life insurance without the knowledge or co-operation of the life assured. An insurance company would be immediately suspicious - if nothing else, they’d suspect that, without the involvement of the life assured, there’d be an increased risk that the personal information given (especially medical and family history) would be unreliable.
You are thinking of dead peasant insurance.
AKA “Dead Janitor Insurance”. This insurance was intended as a way of protecting companies from the effects of a death of central and/or vital employees.
But it has become discredited because it had reached the point where companies where insuring low-rank employees who were clearly not vital to the company’s continued existance. It had become just another way of gambling on the future as a method of making profit in a manner no different from stock market trading.
Not suprisingly the employee’s didn’t care for that, especially in the case of low-pay workers whose families my not have any insurance themselves and who would receive nothing in the event of their death. It’s also argued that the company might also develop a less than complete interest in the health and safety of their minor employees.
OK, so do I need “insurable interest” to insure them at all, or just without their permission?
And if all I need is their permission, I could still quite quickly and quite easily make mega bucks with this scam. I’m a social worker, and I have at least three clients who aren’t likely to live past the next three years. I could easily have them sign the forms. Hell, I could probably prove “insurable interest” to some extent (if three of my clients die, that’s less work for me and could possibly lead to my being laid off…).
DISCLAIMER: This is, of course, unethical and I’m not going to do it.
This thread, while very bizzare in its subject matter, does have a bit of intelligent discussion of life insuance policies.
Am I the only one that caught this? What the hell is a saliva test, and what fraud does it prevent?
The definitive answer is “it depends.”
Consent is by no means a requirement of insurability. Insurable interest is.
Insurable interest is often misconstrued as simple financial ties, but in fact it no such thing. The purpose of insurance is to protect against loss. If you personally are not affected adversely by the death of the person for whom you are seeking insurance, than you have no insurable interest.
Insurable interest as a rule does not exist to prevent gambling, but to prevent adverse selection.
Adverse selection needs to be examined from the standpoint of the insurance company.
Insurance companies have been around for several centuries. In that time they’ve learned a thing or two.
One of the first things they learned from bitter experience is that if Fred Finger walks into an insurance company and takes out an Insurance policy on Marty Fink with whom he has no connection or interest than Marty Fink is almost certainly about to be taking a dirt nap. That means that the insurance company will have to write a big check.
In other words, adverse selection means that people will have a tendency to seek out insurance only when they feel that it will pay off.
Insurance companies must guard against this. Once it writes a policy on somebody the insurance company has an interest in that person’s life. It is bad for them if people die before they have collected enough premiums to cover the policy. Insurance companies wish to write policies on people who live for a while, not who are about to die.
One of the best ways to guard against adverse selection is by mandating insurable interest.
If you are taking out a policy on a third party, you must have an interest in that party’s survival. The insurance you take out must not exceed that interest. The insurance wants you as the policyowner to be on the same side as the insurance company. You both want that person to live for a good while.
Insurance companies will not write policies without insurable interest for the same reason that they will not write policies on abandoned buildings to pyromaniacs with mafia ties.
As I said, this insurable interest need not be financial. For example, if you are married it is assumed that you have an insurable interest on your spouse. The same thing for children.
If you have insurable interest, the nicety of consent is not really an issue.
For example, I have insurance on my wife. She has not given her consent to be insured.
How did this happen?
Well, at work I decided that if something happened to my wife it would be difficult to raise the kids and work at the same time all by myself. So when I filled out my benefits form I elected to have insurance coverage extended to my wife. No consent was required or asked for.
This is not a nefarious behind the back sort of deal. No consent is required simply because it is stupid to ask for it in such circumstances. It is assumed that I have the right to insure my wife, and that there is no reason why she would not consent to such a thing.
There are other circumstances in which insurance is permissible and proper without the knowledge or consent of the insured.
For example, Dad may own a large farm on property worth several million dollars. This may be his primary asset. Dad wishes to leave his farm to his son, but is unwilling to meet with an estate planning specialist to ensure that this will occur.
Being wise and discreet, the son may realize that there is a large estate tax issue as regards this property. He may insure his ability to inherit this property by taking a life insurance policy out on Dad large enough to cover the estate taxes that will need to be paid.
There is no technical reason why Dad needs to have knowledge of this as a point of insurability or law. As a practical matter it is another story.
Insuring my wife is a common and ordinary risk that the insurance company is prepared to accept at face value, at least in the manner in which I have insured her through my work. Because it is a common thing it is not as subject to adverse selection as other circumstances might be.
Taking out a policy on Dad’s estate may be subject to adverse selection. Any time adverse selection becomes a reasonable possibility it is incumbent upon the insurance company to examine the risk before they write the policy.
Most of this due diligence occurs on the application. Some may occur in an investigation which will occur after the app is taken (we are talking about policies for reasonably large amounts of money, typically $25,000 or more at minimum.)
On the applicationt there will be need to complete a medical history as well as a release for medical records. Do you see the problem?
Medical records are private. They cannot be released without the consent of the person in question. It will also be difficult to take the medical history of somebody without telling them why you are doing it. Usually as a part of the investigation the Insurance company will wish to have somebody (usually a nurse) meet with the potential insured and perform some rudimentary medical tests, get some sample of blood or urine, test blood pressure, and interview them for signs of mental illness. They are also on a fishing expedition with this interview, looking for any legitimate reasons why this person should not be insured.
Most of the time, if a nurse shows up at your door and wants to perform tests and conduct an interview the person being tested and interviewed is going to want to know why. The question usually comes up. It would be an actionable and fraudulent endeavor if the representative were to invade that person’s privacy under false pretenses or dissemble as to motivations.
Theoretically if an insurance company wanted to forgo all this and just write the policy, they could, as they did for me as regards my wife.
In most other circumstances the insurance company is going to want to evaluate the risk before writing the policy and as a practical matter it is very difficult without both consent and cooperation from the person to be insured.
Consent from the insured is usually sought for another matter. It is a good indicator of risk. If the person seeking the policy wishes to hide it from the person he is insuring, or the person to be insured has reason not to consent, it is a relatively good indication that this is a bad risk for the insurance company. Something is wrong.
Now insurance companies like to write insurance policies, and they like to write very large insurance policies. They just like to do them wisely. There is nothing theoretically obstructing a dedicated and ingenius insurance agent and his band of intrepid underwriters from pursuing such delicate policies where Pops may not particularly be happy about being insured. Such is what seperates the men from the mice, and the urge to boldly underwrite what no man has underwritten before is a force that drives any good agent. Difficult will mean a big commission, right? Most insurance companies maintain a special department for dealing with all kinds of wacky and unusual circumstances under which large policies may be written. Consent is just another obstacle. Just don’t expect them to bother for a $50 term life.
There are other circumstances in which policies may be written without the knowledge or consent of the insured. Children, guardianships, certain powers of attorney, business arrangements, large debts, etc.
Insurance companies are not stupid. If you particularly wish to avoid consent that is a big warning flag as far as the Insurance company is concerned. You had better have a very good and convincing reason as to why the insurance company should forgo it.
Now hopefully I have told you far more than you would ever wish to know about consent and insurance. Practically though, I have just given you a general outline. Each state has its own particular laws and guidelines for insurance. These can determine in what circumstances consent to be insured is required prior to a policy being written and in what circumstances it is not required. They may also determine in what circumstances a policy can be written even if the person to be insured specificaly objects.
Consult your state laws or your state insurance commissioner for information specific to your state.
Like I said at the beginning “it depends.”