Can a Stranger Buy a Secret Life Insurance Policy on You?
Buying life insurance is full of all kinds of checks and balances to ensure you know what you’re buying and the insured knows they’re covered by a policy.
There are forms to sign, medical tests to take and an “insurable interest” to prove that the buyer and the insured person have some sort of relationship, such as being married or business partners.
A stranger, or even a relative, can’t take out a life insurance policy on you without your knowledge.
“The beneficiary of a life insurance policy must have an insurable interest in the insured,” says Rob Drury, executive director of the Association of Christian Financial Advisors. “Presumably, someone wishing to insure another person’s life would likely make himself the beneficiary.”
Signing an application is just the beginning.
“Under ordinary circumstances, the insured must agree to a policy on his or her life,” says Steven Kobrin, who owns a national life insurance brokerage. “He must sign the application and agree to go through full underwriting, including a medical exam. So the norm is that nobody could take out a policy on you without you knowing it.”
But there are exceptions outside the norm. Here are a few:
Divorced: This is an example of when there’s “a legitimate need for life insurance and the insured does not have to cooperate,” Kobrin says. If one spouse is obligated to have coverage and refuses to do so, an excess-lines carrier “could very well issue a policy without the insured’s knowledge,” he says.
“It must be emphasized that a common commercial carrier typically does not do this, and that the circumstances must be extraordinary for an unconventional carrier to do so,” Kobrin says.
Proving a relationship with a contract: Specialty policies allow some people to buy life insurance on others without their knowledge, for example, if they can prove a relationship in the form of a contract, says Liran Hirschkorn, owner of BestLifeQuote.com.
An example is a Hollywood agent with a big-name client such as Tom Cruise, Hirschkorn says. If the agent earns $500,000 a year from that professional relationship, and if Cruise dies “I’m in big trouble income wise,” Hirschkorn says.
“There are speciality policies where if I can show a contract and prove that I am his agent, I can buy a policy on his life,” he says.
Policy on a child: A parent purchasing life insurance on a child without the child knowing it is probably the most common form of insurance being bought without the insured’s knowledge.
“The child is not required to sign anything and probably won’t be aware that insurance has been purchased on his life,” says Christopher Huntley, co-founder of JRC Insurance Group.
Insuring employes: Corporate-Owned Life Insurance, or COLI, used to allow companies to take out life insurance policies on their employees. Also known as “dead peasant insurance” or “janitor insurance,” the policies were once used by Wal-Mart but have been ruled illegal.
“At one time, employers were allowed to insure an employee’s life without that individual’s consent,” Drury says, “citing a potential financial loss upon the employee’s death, but this practice has since been outlawed.”
Except in these rare examples, the person covered by a life insurance policy is likely to be notified that someone is trying to take out a life insurance policy on them. They may get a call from an insurance company, or at least a letter, confirming their knowledge and approval.
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