When choosing a beneficiary, you need to think about who depends on you financially. If you’re married, you will likely choose your spouse as the primary beneficiary, and your spouse would choose you. Together, you would name secondary beneficiaries in case something happens to both of you.

Keep in mind, people outside your immediate family may also depend on you. Do you help pay your parents medical bills? Did you agree to pay for your nephew’s education?

Since you can name more than one beneficiary, you can specify what (and how much) each of these people would receive when you die. This way, those who depend on you can still count on your financial support.

Here are some questions to answer as you choose a beneficiary:

1. Who depends on you financially? Make sure they’re included as a beneficiary.

2. If you have children who are minors, who will be the trustee of their money until they turn 18?

3. Will you set any conditions on when your children can receive your assets? (graduate from college, turn 25, pay off any debt they have, etc.)

4. Do you want any assets to remain in the family? (heirlooms, jewelry, property, etc.)

5. Do you want to support any churches, charities or nonprofits?

No matter who you choose as beneficiaries, you need to review your documents on a regular basis. Because life happens. A marriage, death, divorce or broken relationship can mean a change in beneficiaries.

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Can you buy life insurance for anyone? It is legal to buy life insurance on another person in certain situations. And it can make sense to do so depending on the circumstances.

How to Take Out Life Insurance on Someone Else

You can’t take out a life insurance policy on a stranger or even someone you just casually know. You have to have an insurable interest in that person. You'll need them to sign off on the policy and prove that their death could have a financial impact on you.

Insurable interest: To buy a policy for someone else, you need to be able to show the life insurance company that you would suffer financially if that person died. To put it bluntly, insurers don’t want to incentivize someone to shorten someone else’s life. So they want to see that you benefit from that person being alive.

Consent from the insured: The person on whom you are buying the policy—the insured—must be involved in the application process. He or she will have to go through the underwriting process, which involves answering questions and, in most cases, taking a life insurance medical exam. The insured will also have to sign the application. The exception to this rule is if you’re buying life insurance for a child (more on that below).

Who Can You Buy Life Insurance For?

In certain situations, it can make sense for you to buy a life insurance policy for someone else. These are common scenarios in which the person you want to insure would be an insurable interest for you.

YOUR SPOUSE

There are a few reasons why a spouse might want to buy a life insurance policy on the other spouse. The most practical reason would be if one spouse is the breadwinner and the other spouse has no income of his or her own to pay for a policy. If the breadwinner is paying for the policy, he or she might also want to be the policy owner.

To be clear, you can’t take out a life insurance policy on a spouse without your spouse knowing and participating.

Your spouse will have to go through the underwriting process and sign the policy as the insured. Even if you bought a simplified issue life insurance policy that didn’t require a medical exam, your spouse still would have to sign the policy.

YOUR BUSINESS PARTNER

It’s common for business partners to have a buy-sell agreement that stipulates what happens to the business if something happens to either of them.

It’s like a prenup for business partners. Often, life insurance is used to fund the buy-sell agreement if one of the partners dies.

Each partner buys a life insurance policy on the other to receive a death benefit payout if the partner dies. That payout can then be used to buy the deceased partner’s share of the business from a surviving spouse, children or other family members.

YOUR CHILD

You can buy life insurance for a child if you are the child’s parent, grandparent or legal guardian and name yourself the beneficiary. The goal isn’t to provide a financial safety net for yourself because you likely aren’t relying on your child for financial support. Instead, buying life insurance for a child guarantees the child will be insurable even if he or she develops a health condition later in life.

Life insurance policies for children, which are permanent life insurance policies, also build cash value that children can access later in life if they want. And if the child dies, the payout from the policy can cover funeral costs.

Unlike other situations when you buy life insurance on someone else, children don’t have to undergo a medical exam or sign the policy. It can be fast and easy to buy a policy for a child.

YOUR FORMER SPOUSE

It’s actually more common for people to buy a life insurance policy on a former spouse than a current spouse. If the divorced spouse is getting spousal support or child support payments, he or she has a very valid insurable interest in the ex-spouse who is providing that support.

In fact, the purchase of life insurance might be ordered by the court during divorce proceedings.

YOUR PARENTS

Taking out an insurance policy on your parents could make sense in a variety of situations. If they don’t have insurance policies of their own, you might want to buy policies to help cover funeral costs and final expenses for them. If you’re a co-signer on any of their loans, taking out policies on your parents would help you pay off those debts when they die.

It also could be a smart financial move to buy life insurance with long-term care benefits for your parents if you’re worried about their ability to pay for any long-term care they might need, Hoang says.

If you’re inheriting substantial assets that will be subject to estate taxes, a survivorship life insurance policy on parents can supply funds to pay the tax bill.

Get Help Buying Life Insurance

If the situation makes sense, contact me, an independent insurance agent to find the right policy. I work with several insurance companies and will know which one has the best policy for the person at the best rate.

Like all forms of insurance, life insurance helps to protect against catastrophic losses. When an insured person dies, their beneficiaries receive a significant payout to ease the financial burdens that may arise after their death.

What Is Whole Life Insurance?

Whole life insurance provides a fixed amount of coverage that can last for as long as the insured person is alive. Unlike term policies that end after a specific number of years, whole life policies may continue to offer coverage as long as you continue to pay the costs of insurance.

When you pay premiums into a policy, the insurance company deducts the costs of providing life insurance and adds the extra money to your cash value. Over time, that cash value can accumulate inside your policy and serve as a reservoir to fund future costs. The cash value generally grows tax-deferred, and you can potentially access it by borrowing against your policy or taking withdrawals.

Premiums on a whole life insurance policy are often level, meaning they do not change from year to year unless you choose certain options. And depending on which of the types of whole life insurance you choose, you might pay premiums for a set number of years or for your entire life. 

Is Whole Life Insurance a Good Investment?

As with any investment strategy, it depends on your needs and circumstances. Whole life insurance premiums are higher than the premiums you’d pay for the same death benefit on a term policy. So if you primarily need life insurance to protect loved ones for a specific length of time, term life insurance is usually your best bet. For example, you might only need coverage that lasts until your children are grown or your mortgage is paid off.

Whole life insurance premiums are relatively high because, unlike a term policy, this type of policy is designed to pay the costs of insurance for your entire life (this is why permanent policies have a cash value component). For most people working with limited funds, it’s smart to direct those “extra” dollars elsewhere. For example, for the same amount of money as a whole life premium, you could buy a term policy and also save for education funding, pay down debts, or contribute to retirement accounts.

Whole life insurance makes the most sense when you know you need permanent coverage—if you want to ensure that beneficiaries get a death benefit, no matter how long you or the insured person lives. For example, you might want a cash injection to help with estate taxes or to provide liquidity at death. With the proper insurance coverage, beneficiaries might not need to sell assets (possibly quickly or at an inopportune time) after an insured person dies.

Is Whole Life Insurance Right for You?

Insurance decisions require a careful analysis of your needs and your budget. Set up a free discovery call and let’s discuss what’s the best life insurance strategy for you.

What is a pre-existing condition?

Before diving into how a pre-existing condition could affect your individual health insurance coverage, let’s see what the pre-existing condition definition is. The Patient Advocate Foundation defines a pre-existing condition as a health problem an individual knew about and had possibly been treated for, before applying for new coverage.

Some examples of pre-existing conditions include:

• Pregnancy

• Epilepsy

• Asthma

• Sleep apnea

• Cancer

• Diabetes

Pre-existing conditions, of course, are not limited to these few examples, and you should make sure to read the specifics of any plan you’re considering to make sure that your plan covers any medical conditions or health problems you have.

Insurance companies used to sometimes charge more or refuse people with pre-existing conditions. This is because more health problems will result in a high-risk pool of members—which means the insurance company was dishing out more money for people who actually used their individual health insurance to its fullest extent.

Do Affordable Care Act (ACA) plans take pre-existing conditions into account?

In the past, pre-existing conditions could pose huge problems for people looking for a new plan. If you had a pre-existing condition, and were looking for a health insurance plan, insurance companies could charge outrageous costs or even deny coverage.

Under current law, insurance companies cannot charge more or refuse coverage due to pre-existing conditions. In 2014, the ACA went into effect, and it was no longer legal for insurance companies to deny coverage for individuals with pre-existing conditions. If you’re buying an ACA-compliant individual health insurance plan, you won’t have to worry about pre-existing conditions you or a family member may have. This does not mean that everything will be covered under your insurance plan. Make sure you read the plan details to see what is covered (regardless of whether it was discovered before coverage under that plan started).

Do non-ACA compliant plans consider pre-existing conditions?

According to healthcare.gov, insurance companies cannot refuse coverage or charge more because of a pre-existing condition, but there are some exceptions to this.

Certain plans, like short-term plans, can reject applicants because of pre-existing conditions. The reason some people may still want these plans, is that they’re often significantly cheaper than ACA-compliant plans. NBC News reported that the current administration has signaled that they plan to extend the amount of time individuals can be covered with a short-term plan. In the past, these plans were limited to 90 days, but it’s possible that they will be extended to 364 days, making them a viable option for some throughout the entire year.

Another exception is that grandfathered plans do not have to cover pre-existing conditions or preventative care, but since these plans are no longer available, you shouldn’t worry about it as someone looking for a new plan.

Will a pre-existing condition result in a higher premium?

Under current law, there should not be any penalty for someone under your policy having a pre-existing condition. If you, or someone under your policy does have a serious health problem, you may end up choosing to buy a plan with a higher premium that allows for more coverage. In that way, a pre-existing condition could result in a higher premium, but only by your choice. You’re not required to choose a certain type of plan depending on health-care needs.

There are still plenty of health insurance options for people with pre-existing conditions. Shopping on the individual market, we may be able to find plans that accommodate your needs and give you the coverage to ensure your medical needs are taken care of.