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Can you take out life insurance for someone else?

Life insurance offers critical cover for loved ones – but can you take it out on behalf of someone else? We consider whether, and when, this can be done.

28 June 2023 · Fiona Zerbst

Can you take out life insurance for someone else?

There may be times that you, as an affected party, need to take out life insurance on behalf of someone of importance to you. Perhaps you are dependent, or you are caring for someone who is.

We explain the concept of “insurable interest” in reference to life insurance, and what this means for the policyholder and the insured person.

Tip: A personal loan can help tide you over if a life insurance payout has been delayed.

Should you take out insurance on someone else’s life?

In South Africa, there is legal provision to take out an insurance policy on someone else’s life. However, you need to prove that “insurable interest” exists.

This can be based on a business relationship, or a bond of love and affection between you; however, you must be able to prove your financial reliance on the insured person.

“In other words, you must be able to demonstrate that the policyholder would suffer a financial loss if the insured person were to pass away,” says Fred Wagenvoorde, financial planner at Fiscal Private Client Services.

To avoid exploitation or fraud, the following measures have been put in place, notes Shivaan Jugdeo, executive head of client solutions at MiWayLife.

  1. Relationship verification. The policyholder must prove a relationship with the individual. Some providers won’t insure where affinity or blood ties are too far removed from the person taking up cover - such as nieces or nephews, cousins, or in-laws. It’s thus important to enquire whether extended family members would be insurable.
    “Proof of insurable interest may include demonstrating that you’re financially dependent or co-dependent, that you reside together, or that there is a bond which may be assessed,” he notes.
  2. Financial impact. The person taking out cover may be asked to prove their financial situation would suffer in the event of the insured person’s death. This ensures that life cover is purchased for genuine reasons rather than speculative purposes.
  3. Consent from the insured. The insured must give independent verbal or written consent, depending on the sales channel used.

Insurers can use their discretion as relates to these criteria, however.

“For example, an elderly parent may not want cover, but her child is insisting on insuring her for R2 million,” says Janet Brodie-Thompson, chief underwriting officer at Momentum Life Insurance.

“The concept of insurance is not about enrichment, which many people forget,” notes George Kolbe, head of life insurance marketing at Momentum. “It is a de-risking exercise that prevents you from incurring a financial loss and being unable to meet your financial obligations.” 

Tips when insuring someone else

Wagenvoorde offers the following tips for taking out insurance on someone else’s life:

  • Discuss your intentions openly with the person you want to insure, and obtain their consent and cooperation throughout the process.
  • Research and compare products and companies to find the policy that best suits your needs and budget.
  • Be sure to supply honest and accurate information about the insured’s health and lifestyle habits, to avoid any complications or claim denials in the future.
  • Consider seeking professional advice from a financial adviser or insurance agent who can guide you through the process and help you make informed decisions.

Tip: Savings can provide you with peace of mind in an emergency. Find out about good ways to start saving today. 

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