You cannot take out life insurance on just anyone — the person must have an insurable interest in you, and in most cases they need your knowledge and permission
Life insurance requires what the industry calls insurable interest. That means the person buying the policy must stand to suffer a real financial loss if you die. A stranger has no insurable interest in you. Your spouse does — they depend on your income. Your business partner does — your death affects the company's value. Your adult child might, if you support them financially.
Beyond insurable interest, most states require that you know about the policy and consent to it. Some states allow it without your knowledge in narrow situations — a spouse or business partner taking out a policy on the other — but even then, you usually find out during underwriting when the insurance company contacts you for medical records or a health exam. Buying a policy on someone without their knowledge is fraud in most places and grounds for the insurer to deny the claim.
Key Takeaways
- Insurable interest means the person buying the policy must suffer a real financial loss if you die — a stranger cannot meet this test.
- Your spouse, business partners, and people who depend on your income typically have insurable interest in you.
- Most states require your knowledge and permission before someone takes out a policy on you, even if they have insurable interest.
- If someone buys a policy on you without your consent, the insurer can deny the claim and the buyer may face fraud charges.
- Parents can usually take out policies on minor children, but adult children generally cannot take out policies on parents without their permission.
Who has insurable interest in you
Your spouse has insurable interest because they depend on your income and would face financial hardship if you died. A spouse can take out a policy on the other spouse, though most insurers still require the person being insured to sign off on it during the application.
Your business partners have insurable interest if your death would damage the business — loss of your skills, your client relationships, or your capital. A buy-sell agreement often includes life insurance for exactly this reason: if one partner dies, the insurance pays out so the surviving partners can buy the deceased's share from the estate.
Creditors do not have insurable interest in you as a borrower, even though you owe them money. A lender cannot take out a policy on you to collect if you die. (They can require you to carry life insurance as a condition of a large loan, but they cannot be the owner.)
Adult children do not have insurable interest in a parent unless they can show they depend on the parent financially — and even then, most insurers will not write the policy without the parent's consent. Parents, however, can take out policies on minor children because parents have a legal duty to support them.
What happens during underwriting when someone applies for a policy on you
When someone applies for life insurance on you, the insurance company will contact you directly to verify the application and gather health information. This is where most unauthorized policies get caught. The insurer needs your medical records, your permission to run a background check, and often a phone call or in-person exam with a nurse or doctor.
If you receive a call from an insurance company asking about a policy you did not authorize, tell them you did not consent to it. The insurer will typically deny the application. If the application was already approved and you find out later, you can contact the insurer and report that you did not consent — this is grounds for them to rescind (cancel) the policy.
Some states have a contestability period, usually two years from the date the policy was issued. During this window, the insurer can investigate the application and deny a claim if they find material misstatement or fraud. After the contestability period ends, the insurer generally cannot deny a claim based on application fraud — but they can still cancel the policy itself if they discover it was issued without your consent.
Why someone might want to take out a policy on you
Legitimate reasons include protecting a business partnership, securing a loan, or ensuring a spouse or dependent has income if you die. These are all proper uses of life insurance and happen every day.
Illegitimate reasons — taking out a policy to collect the death benefit by harming you, or to profit from your death without your knowledge — are rare but do happen. This is why insurers investigate large claims and why they require your consent. If an insurer suspects foul play, they can deny the claim and refer the case to law enforcement.
What to do if someone takes out a policy on you without permission
If you discover that someone has applied for or taken out a policy on you without your knowledge, contact the insurance company immediately and tell them you did not consent. Provide this in writing if possible. The insurer will investigate and likely cancel the policy.
If the policy has already been in force for some time and you are concerned about the person's motives, consider reporting it to your state's insurance commissioner or to local law enforcement. Taking out a policy on someone without their knowledge can be fraud, and in some cases it can be part of a larger scheme to harm you.
You can also check whether any policies exist on you by contacting the Medical Information Bureau (MIB), which maintains records of life insurance applications. You can request your MIB report for free once per year.
Policies on minors and dependents
Parents can take out life insurance on their minor children. The insurable interest exists because parents have a legal obligation to support their children. These policies are usually small — often $5,000 to $25,000 — and are meant to cover funeral expenses and final medical bills, not to create a windfall.
Guardians of adults who lack capacity (due to dementia, intellectual disability, or other conditions) may also be able to take out policies on the person they care for, though the rules vary by state and insurer. The guardian must show that they would suffer financial loss if the person died — for example, if they provide unpaid care or support.
State variations in insurable interest rules
Most states follow the same basic rule: insurable interest must exist, and the person being insured must consent. But some states are stricter. A few states require that the person buying the policy have a family relationship or financial relationship to the person being insured — meaning you cannot take out a policy on a business acquaintance or a distant relative, even if they agree.
Other states allow spouses to take out policies on each other without explicit written consent, though the insurer will still contact the person being insured during underwriting. A handful of states allow creditors to take out policies on debtors in specific situations, such as a mortgage lender on a large commercial loan.
If you are considering taking out a policy on someone else, or if you are concerned about a policy taken out on you, check your state's insurance department website or call them directly. They can tell you what the rules are in your state and whether a specific situation is allowed.
Frequently Asked Questions
Can my employer take out life insurance on me without asking?
No. Your employer can require you to carry life insurance as a condition of employment, but they cannot take out a policy on you without your knowledge and written consent. Some employers offer group life insurance where the company pays the premium and you are the beneficiary — that is different and requires your agreement to enroll.
What if my spouse took out a policy on me and I did not know about it?
Contact the insurance company and tell them you did not consent to the policy. They will investigate. If the policy is recent, they will likely cancel it. If it has been in force for years, the insurer may honor it because the contestability period has passed, but you can still ask them to cancel it based on lack of consent. You may also want to speak with a lawyer about your spouse's motives.
Can I take out life insurance on my adult child?
Only if your adult child consents and you can show insurable interest — usually that you depend on them financially or that you would suffer a direct financial loss if they died. Most insurers will not write a policy on an adult child without the child's signature on the application.
Does the person being insured have to be alive when the policy is issued?
Yes. You cannot take out a policy on someone who is already dead, and you cannot take out a policy on someone with the intent to harm them. Policies must be issued while the person is living and in good health (or at least able to be underwritten). If someone dies before the policy is fully approved, the application is denied.
What is a viatical settlement, and does it change the insurable interest rules?
A viatical settlement is when someone who is terminally ill sells their existing life insurance policy to a third party for cash. The buyer then becomes the owner and beneficiary. This is legal and does not require the same insurable interest test because the policy already existed and the terminally ill person consented to the sale. However, the buyer must still follow state laws, which vary.