If you are worried about someone buying a life insurance policy on your life without your knowledge, you can most likely rest easy. First of all, it isn’t legal, and there are systems in place to prevent this from happening. Now, is it absolutely impossible that some kind of sophisticated fraud has taken place? Of course not! But life insurance companies are extremely sensitive to rooting out any fraudulent activity like this. Chances of someone doing it successfully are very low! And their chances of them ever collecting money upon your death are even lower.
It is Illegal to Obtain Life Insurance without Consent of The Insured
The most important piece to remember is that while life insurance laws are state specific, every state requires that in order to take out a life insurance policy, the “insured” person provides their consent. Without valid consent, the life insurance contract is void. In order to obtain the contract, the owner would need to apply using the social security number of the insured person, the name, address, and also the insured person would need to sign a number of pages in the document.
If someone somehow forged the signature and was able to successfully obtain a policy on someone who did not consent, it would constitute insurance fraud. Insurance fraud can be punishable with fines and jail time. It would also probably bring the life insurance company under regulatory scrutiny. If someone was to obtain a policy without consent, it is a very serious matter that would involve the police, the court system, and the regulatory insurance bodies governing life insurance companies in the State in which they operate and issue the policy.
It is Impractical
Not only is it illegal, it is also impractical. Most life insurance policies require that a medical exam be performed. The medical exam typically requires an in person examination and interview. Furthermore, medical records are normally requested from the insured person’s physicians. The insurance company also will likely perform a check of the address provided for the insured person to make sure they live in the address provided, and they will issue a notice to that address when the policy is issued. It is difficult, though of course not impossible, for someone to accomplish all of this without the insured person noticing that a policy was issued on their life.
It May not Actually Pay
Even if a policy was somehow issued without the consent of the person whose life it is written on, life insurance companies have entire departments dedicated to making sure that death claims are paid out appropriately. At the time of death, an original death certificate usually needs to be provided to the insurance company along with other documentation. These departments are adept at identifying fraud. Not only that, but today there is also help from technology in identifying possible fraud. If there is any reason to suspect fraud has occurred, the claim will be passed to another special department that investigates fraud. Upon investigation, they will do things like compare signatures on the application to other known signatures, interview family members, and even go so far as to hire private eye detectives. Without valid signature and consent from the insured person, a life insurance contract is not valid, just like any forged document.
If you purchase a life insurance policy on someone who is not aware, the death claim will likely never be paid. Furthermore, if fraud is suspected the life insurance company will bring in the local authorities, even if the person who committed fraud lives outside of the United States. So it is a lot of risk, a lot of sophisticated procedures and fail-safes standing in your way, and very little chance of an actual death claim payout. Put simply, it is not worth the effort.
That being said, it is still legal to purchase life insurance on another person who is not you as long as there is valid consent. In order to do this, you will need to satisfy some requirements.
Who Can you Legally Purchase Life Insurance On the Life of?
In order to purchase a life insurance policy, you must prove that there is what is known as an insurable interest. An insurable interest means that the purchaser of the policy would be financially harmed by the death of the person who is insured. There are a number of connections that create an insurable interest.
You are always assumed to have an insurable interest in yourself. You can purchase life insurance on your own life freely. You are also assumed to have an insurable interest in a direct family member such as a spouse, child, or parent. Getting further from the family nucleus, an insurable interest could exist on the life of a caretaker or guardian who is not a parent or the child they are in custody of, a business relationship such as key man life, or even a creditor or lender. Every state issues guidelines for determining if an insurable interest exists between the beneficiary of a life insurance policy and the insured person.
Again the insured person must provide their consent for the policy.
To purchase life insurance for another party, you will need:
So to recap, you can not take out a life insurance policy on someone without their knowledge, and no one should be able to do it to you. In order to have a valid policy, the owner must:
- To clearly illustrate your insurable interest. In other words, you will have to show why you want to insure the individual. Insurable interest indicates that you have a financial stake in the individual you are insuring; for example, your spouse is the sole provider of the family and you and your children depend on his income.
- To get the approval of the person being insured. Before an insurance company will issue a policy, they will need the insured to sign important documents; in other words, they will have to issue their approval for the policy.
- A medical examination for the insured party. Most insurance providers will require a medical exam before issuing a life insurance policy to determine the risk of covering the individual.
- Pass through underwriting without needing additional requests that can only be met by the insured person.
And even if someone does manage to commit fraud, and to take out a life insurance policy, they probably will not be able to collect the death benefit. Today, it simply does not make sense to try to sneak this past the insurance companies given the risks and low probability of success. If you suspect that someone has taken out a life insurance policy on your life without your consent, please present your information to your States Life Insurance Regulatory Agency.