I had an interesting question pop up the other day about whether or not you can take out a life insurance policy on someone you do not even know. Presumably, this would mean that if they died, you would get a cash payment of some sort…without them ever even knowing you had the policy in the first place (I doubt you would take the time to flag someone down, whom you don’t know personally, and tell them about this great new life insurance policy you have).
Could you imagine, having free reign to take out life insurance policies? You could take one out on movie stars like Meryl Streep and Clint Eastwood. You could take one out on the President, or someone in a precarious situation like a football player, a soldier, or a police officer. And since they don’t ever have to know, then you could save on all of those awkward conversations…right?
To be honest, I didn’t know the answer to either of these questions until I researched further (though my gut told me that it would be ridiculous to be able to take a policy out on a total stranger). Here is what I found:
Taking Out Life Insurance Policies on Strangers
It turns out that you cannot take a life insurance policy out on someone you do not know (thank goodness! Can you image how many policies would be out on stars like Morgan Freeman and Tom Cruise?). The regulation of insurance is left to each state so the laws vary; however, generally speaking, you must have an “insurable interest” in the person you will be taking a life insurance policy out for. This is easy to prove for people that are close family, such as your spouse, child, etc. But showing that you have insurable interest to a complete stranger or distant relative, which means that it is in your best interest for the person to be alive financially or otherwise, is much more difficult to do.
Taking Out Life Insurance Policies without the Insured Person Knowing
This leads to the second question. Can you take out a life insurance policy without the insured person knowing? We know that you cannot take policies out on strangers, but what about if you wanted to take a policy out on a relative?
In many cases, insurance companies require medical exams for the person who is to be insured. But this is not always the case. The real way that the person will find out you are taking an insurance policy out on them is during the application. If the insured applicant’s name is different from the policyholder’s name, then the signature of the insured person is required.
Cases where applicants have forged signatures, unfortunately, do occur. Just google the title to this article and read the comment sections where numerous people are either concerned that someone may have taken a policy out on them, or know that someone has and forged their signature. In this case it is on the company to conduct due diligence with each application, as well as your trust in the people around you that they would not take out a policy on you without your knowledge to stop this sort of thing from happening.