Can I take out a life insurance policy on a stranger?

[Gfactor]

@Kalhoun

Okay…I’m not arguing that we should be able to take out policies on strangers, but how does this work when a guy has a life insurance policy on his stay-at-home wife or one of his kids? There’s no financial loss there. If pain and suffering is fair game, I get that, but the same could be said for my emotional state when John Lennon died. How do they determine this kind of policy?

It’s complicated:

This lack of structure caused devastation and corruption in the marketplace, which drove England to make changes. In 1774 it issued The Life Assurance Act, which sought to establish an insurable interest in the form of a potential pecuniary loss stemming from a legal obligation that is suffered on the death of the insured. Put another way, the applicant for a policy on the life of another had to have a monetary interest in the continued life of the person who was insured, and not just in his or her death. If there was no such interest, the policy was voidable—that is, the insurer was under no obligation to honor the contract and pay the death benefit.
Over time, most states in the U.S. have codified the insurable interest rules to include a broader set of standards than those set forth in the 1774 Act. In addition to the presence of a pecuniary interest, most contemporary insurable interest statutes provide that an insurable interest can also be established by people who are related by blood. Although most states have codified the insurable interest rules, there remains a lack of uniformity in their interpretation and application. There are many cases in which identical, or nearly identical, statutes in different states have produced completely different results. For example, a court in one state may hold that a familial relationship alone is enough to support an insurable interest, while another state court may determine that there is not a strong enough pecuniary interest between parties to establish such an interest. It is important to keep in mind that the insurable interest rules normally do not apply to policies that are assigned. An assignee does not necessarily have to have an insurable interest. Historically, assignments have been used to cover debts and other obligations where a pecuniary interest exists. In recent years, there have been policies put in place with the premeditated plan of assigning and selling them to a third party in the settlement market. In the view of many, this practice has reintroduced an element of gambling, which runs counter to spirit of the insurable interest rule. However, case law supports the validity of assigning the policy or the death benefit after a policy has been issued.

http://www.financialadvisormagazine.com/past_issues.php?id_content=3&idArticle=1435&idPastIssue=119

[LouisB]

At one time*, there were coin operated insurance policy machines in airport terminals. One could, for a couple of bucks, buy an insurance policy immediately prior to boarding the airplane. Of course the policy was good only for a specific flight, and IIRC, only one way. Anyway, I remember a story in the San Francisco Chronicle concerning a guy who hung out at the airport and solicited people to allow him to buy a policy on their lives—the guy said it was less expensive than a trip to Reno and the payout would be much better IF he hit the jackpot, so to speak.

For all I know, the story was apocryphal but if we assume it was true, would the buyer have been able to collect on a stranger’s death?

*1940s, early 1950s IIRC

[Mr.Slant]

@Kalhoun

Okay…I’m not arguing that we should be able to take out policies on strangers, but how does this work when a guy has a life insurance policy on his stay-at-home wife or one of his kids? There’s no financial loss there. If pain and suffering is fair game, I get that, but the same could be said for my emotional state when John Lennon died. How do they determine this kind of policy?

The stay-at-home-mom:

1. Costs money to bury
2. Provides a valuable service to the dad. He can compare her cost to the cost of day care, cooking and cleaning. In fact, there was a bogus study that did just that not too long ago.
3. Had the potential for going back to work after the kids get older, at least in theory.

The question on wifely services becomes replacement cost. How easily can he remarry and get the same quality of service from a replacement? How long will he be out of pocket for various services?

I suppose for kids the question would still cost money to bury. I can’t think of any other arguments for carrying insurance on them, although there is the issue of carrying some extra to cover the medical care they’ll likely receive in the process of passing. Not everything is covered under insurance.

[Doug_Bowe]

@Mr. Slant

I’ll submit that Wal-Mart does suffer a loss, albeit minor, when the janitor dies…(snip)

And you just named it. The WSJ did an article on this several years ago.
Taking out a policy on a rank and file worker is called “Janitors Insurance.”

[Bill_Door]

This goes back many years, because I haven’t seen one of these vending machines in years, but there used to be life insurance available in airports for dying in a plane crash. It only cost a couple of dollars. Every once in a while I’d give a couple of dollars to one of my colleagues who was going to the airport and ask them to buy some flight insurance in my name. “I don’t know, I just feel lucky.” I’d say.

Would I have been able to collect if the plane had gone down?

[Mr.Slant]

@Bill Door

SNIP
Would I have been able to collect if the plane had gone down?

I would say that given your username that would most definitely have qualified as foul play.

[Khampelf]

@Bill Door

Would I have been able to collect if the plane had gone down?

With those vending machine policies, isn’t it most likely that the traveler has the paperwork in his pocket with him when the plane goes down, and nobody ever knows about it? What do you turn into the insurance co?

I’d wager those were nearly pure profit for the insurance companies.

[hajario]

@The Sonoran Lizard King

With those vending machine policies, isn’t it most likely that the traveler has the paperwork in his pocket with him when the plane goes down, and nobody ever knows about it? What do you turn into the insurance co?

Those were around as late as the 70’s. They came with a postage paid envelope. You would put the policy in the envelope and the envelope in a mail box next to where you bought the policy.

[Rick]

@Kalhoun

Okay…I’m not arguing that we should be able to take out policies on strangers, but how does this work when a guy has a life insurance policy on his stay-at-home wife or one of his kids? There’s no financial loss there. If pain and suffering is fair game, I get that, but the same could be said for my emotional state when John Lennon died. How do they determine this kind of policy?

Your wife dies in childbirth.
you have to bury her. You have to hire child care how many years? You have to possibly pay medical bills on your late wife, and perhaps the child. If you wife worked before the pregnancy you will not have her income to help support the family.
Yeah there is a loss there.

@Bill Door

This goes back many years, because I haven’t seen one of these vending machines in years, but there used to be life insurance available in airports for dying in a plane crash. It only cost a couple of dollars. Every once in a while I’d give a couple of dollars to one of my colleagues who was going to the airport and ask them to buy some flight insurance in my name. “I don’t know, I just feel lucky.” I’d say.

Would I have been able to collect if the plane had gone down?

Sure you could have, everyone has an insurable interest in their own life. Your coworker was buying the policy on his own life. I could buy one of those policies and name you the beneficiary, it would be legal. It might go against the underwriting rules of the issuing company, but it is legal. Once the policy is issued (not applicable to a travel policy) the owner can name anyone as beneficiary. No restrictions whatsoever. You could name your dog the beneficiary. not a good idea, but you could and it would be legal.
Oh The Sonoran Lizard King as hajario said you mailed the policy out. Yeah they would pay off, but how often does a commercial airliner crash? The insurance company would be happy to pay out a claim, because they had sold sixty two gazillion policies that they did not have to pay off on.

BTW, I think those machines are still in airports I’ll look tomorrow when I hit the airport.

[Khampelf]

@hajario

Those were around as late as the 70’s. They came with a postage paid envelope. You would put the policy in the envelope and the envelope in a mail box next to where you bought the policy.

Ahhh. Thank you. As soon as I posted, I thought about a carbon copy deposited in the vending box, or something. I still imagine those policies were cash cows for the insurance companies.

I’m old enough to vaguely remember them, but not the specifics.

[Bill_Door]

@The Sonoran Lizard King

Ahhh. Thank you. As soon as I posted, I thought about a carbon copy deposited in the vending box, or something. I still imagine those policies were cash cows for the insurance companies.

I’m old enough to vaguely remember them, but not the specifics.

Sure they were. It had a worse payout than the lottery, but you’ve got to be in it to win it.

[Gfactor]

Here is a good article about flight insurance: http://findarticles.com/p/articles/mi_qn4182/is_19960805/ai_n10095767

[Gfactor]

As of 2000:

Travelex sells $500,000 worth of flight insurance coverage for $18. Add $1 to the price and you get a three-day package with baggage and medical insurance, Ambrose said.

http://findarticles.com/p/articles/mi_qn4155/is_20000103/ai_n9599265

[Voyager]

@Rick

BTW, I think those machines are still in airports I’ll look tomorrow when I hit the airport.

I remember them well, but I haven’t seen one in years. (Not even in Vegas. )They used to be all over the place, though.

[spifflog]

@Rick

What WM has done is take this key man coverage and applied it to people that clearly not key to WM’s profits. You would be hard pressed to make an argument that if Juan the janitor kicks it would have a negative effect on WM’s profits.
Scummy? you bet.
Legal? Yes as far as I can tell.

I know is America today, we are rquired to love mom, apple pie and hate Walmart. But why is it scummy? The insurance icompany s letting WM take out the policy, presumably to make money. And WM isn’t going to kill the guy. What’s the big deal?

[Kalhoun]

@Gfactor

It’s complicated:

http://www.financialadvisormagazine.com/past_issues.php?id_content=3&idArticle=1435&idPastIssue=119

Ok. I’m starting to understand. So…does this exclude an unmarried gay couple from taking out life insurance policies on each other? What if one member of this couple doesn’t work and never did…i.e., one partner completely supported the other throughout the relationship?

[Kalhoun]

@Rick

Your wife dies in childbirth.
you have to bury her. You have to hire child care how many years? You have to possibly pay medical bills on your late wife, and perhaps the child. If you wife worked before the pregnancy you will not have her income to help support the family.
Yeah there is a loss there.

That scenario makes sense. What if you have a policy on a 4-year old child? Say the kid drowns or is hit by a car. No medical bills incurred. Will a policy pay in that case?

[Gfactor]

@Kalhoun

Ok. I’m starting to understand. So…does this exclude an unmarried gay couple from taking out life insurance policies on each other? What if one member of this couple doesn’t work and never did…i.e., one partner completely supported the other throughout the relationship?

As my esteemed colleauge, Rick, has pointed out, it’s not that tough to work around the insurable interest doctrine. Even if a state didn’t recognize an insurable interest in that case, the partner whose life is getting insured could buy the policy and make the other partner a beneficiary. Also, the insurable interest doctrine generally doesn’t prohibit transfers of existing policies.

[plnnr]

@Voyager

I remember them well, but I haven’t seen one in years. (Not even in Vegas. )They used to be all over the place, though.

In that wonderfully bad movie Airport starring Burt Lancaster, Dean Martin, and Helen Hayes (IIRC, she won an Oscar for her role), the man who blows himself up and rips a hole in the plane purchases flight insurance just as he’s getting on. He names his wife as the beneficiary and the ticket agent is the one who offers to post the insurance policy for him.

Not that Hollywood is exactly known for its veracity, but it was portrayed.

[Rick]

Kalhoun Yes a gay couple could (and I sure do) buy life insurance on their own lives and name their partner as beneficiary. As I said, everyone has an insurable interest in their own life.
As far as children go, yes a lot of life insurance is sold to kids. I bought policys on each of my children when there were small. Now they are adults, and have a policy based on the rates when they were little.
The only time either of the above scenarios would raise an eyebrow at the insurance company was if the amounts were way the hell out of line. if Joe six pack wants to buy a 2.5 million dollar policy on both of his kids, the underwriter would probably go :dubious: