Can you take out life insurance on anyone?

Can You Take a Life Insurance Policy Out on Anyone in Canada?

No, you can’t take out a life insurance policy on just anyone in Canada, even if you have a relationship with them. To take a life insurance policy out on another person, you must have their consent and proof of insurable interest, meaning you’d face a financial loss if they passed away.

What is insurable interest?

Insurable interest refers to people who share financial responsibilities, like spouses, business partners, or even siblings. For example, if you rely on your partner’s income to help pay down your shared mortgage, or you’re the next-of-kin for your brother’s child, you have a defensible financial stake in their life.

Who can you get a life insurance policy for?

In Canada, you can typically take out a life insurance policy on someone you have insurable interest in, as long as you have their consent. 

Here are relationships that usually account for insurable interest:
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• Spouse or common-law partner: Shared income, debt, or dependents make this one of the most common cases, especially if your partner is the main provider or breadwinner.
• Child (minor or adult): You may insure your minor children to cover final expenses or future planning. Adult children can be insured if aging parents rely on them financially, or vice versa.
• Parent or grandparent: Covering end-of-life expenses, offsetting estate taxes with property inheritances, and critical illness insurance are the most common reasons people insure their parents or grandparents.
• Sibling: You may take out a life insurance policy on your sibling to cover any expenses associated with taking care of their children if they were to pass, or to replace care if they are the primary provider for your parents.
• Business partner: You can use the payout from this policy to take over your partner’s shares of the business or mitigate the financial impact of losing them.
• Care giving: Some life insurance providers may also recognize caregiving or emotional dependence as a valid reason to take out a life insurance policy on an individual.
• Key employee: Employers and companies may insure an employee or group of employees if their death will cause financial hardship for the company.
• Ex-spouse: Insurable interest may apply if there are shared financial obligations, such as child support or an outstanding shared mortgage.
• Debtor (in rare cases): In some cases, you may be able to take out a policy on someone if they owe you a significant debt and their death would put the repayment at risk.

When is getting life insurance for someone else a good idea?

It may be a good idea to get a life insurance policy for someone else if you are financially dependent on them, or if their death would result in financial hardship for you and your dependents.

As long as you have their consent and can show insurable interest, seeking life insurance for another person is a safe and smart way to protect yourself, and your loved ones, from potential financial hardship.

Here are some of the most practical reasons to take out a life insurance policy for someone else: 

For most of these scenarios, term life insurance is the best fit for flexibility and affordability. You typically only need coverage for someone else during a set period; while raising kids, managing a business, or sharing debt. Term insurance offers protection during the years when it’s needed most, and policies are generally more cost-effective. 

PolicyMe may be a good place to start if you’re interested in taking out a term life insurance policy for someone else. The application process is completely online, making it a fast and effective way to get the coverage you need. And if you’re insuring yourself and your spouse, you can get 10% off your monthly premiums in the first year. 

Example scenarios for taking out life insurance on someone

When done for the right reasons (with consent and insurable interest), getting life insurance coverage for someone else can provide valuable financial protection. However, without these key components, it may be unnecessary or downright illegal.

Let’s walk through a few scenarios to help you gauge when it may be a good idea, bad idea, or a recipe for insurance fraud.

Good idea: Example scenario 

Say you have children with your ex-spouse, and you rely on them for financial support. In this case, the death benefit could help fund your children’s education, replace lost child support, and cover daily living expenses if your ex were to pass away. 

Here are a few things to consider when calculating life insurance coverage:

• Estimate the cost of raising your children (e.g. housing, childcare, and education)
• Consider how long they’ll be financially dependent
• Account for potential inheritances that your children may need access to
• Plan for final expenses

Case study: Adding up the numbers

Ally and Steve divorced three years ago, but they have two young children they provide for together. Ally is the primary caregiver, but Steve contributes significantly through both financial and emotional support. They discuss their long-term goals for continued care and decide that life insurance for Steve could provide them with peace of mind.

Ally estimates the following:

• Their kids will likely be dependent for the next 20 years
• Housing, education, and daily living expenses: $300,000
• End-of-life expenses for Steve: $10,000
• Potential inheritance: $40,000 split between the two of them
• Total: $360,000

Given that Steve’s health is in good condition without any pre-existing conditions, he and Ally decide that a 20-year term life insurance policy with a payout of $360,000 would be a good idea. With Steve’s consent, Ally collects the necessary documents to prove insurable interest before comparing term life insurance quotes from different insurance providers.

Bad idea: Example scenarios 

Let’s consider a case where you want to insure your adult sibling because you’re emotionally close, but there’s no financial connection. 

Even if you have a strong emotional relationship, this generally isn’t enough to justify taking out a life insurance policy on someone. If you don’t financially depend on your sibling, their passing would not cause you any financial harm, and a life insurance application may be denied by the insurance company.

No financial connection = no insurable interest

Even with consent from the person you want to insure, it typically isn’t a good idea to apply for a life insurance policy for another person without insurable interest. Life insurance is designed to protect you or your loved one from financial hardship, not to provide a payout without cause.

Very bad idea: Example scenarios 

Consent is mandatory when it comes to taking out a life insurance policy on someone else. Life insurance applications require full knowledge and consent from the person being insured.

If you try to take out a policy on a friend, coworker, or relative without telling them or without a financial relationship, the insurance company will likely deny the application and your attempt could be considered insurance fraud. Even if their death could cause you financial hardship, the application can still be denied if you don’t have the consent of the insured person.
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No, you can’t insure someone in secret

Life insurance always requires the insured person’s consent. Applying without their knowledge or a valid financial connection can lead to a denied application or even insurance fraud.

How to get life insurance for someone else

Getting life insurance for someone else in Canada can vary from one insurance provider to the next. But there are a few basic steps you’ll need to follow to successfully set up the policy.

Step one: Confirm you have insurable interest

To take out a life insurance policy on someone else, you’ll need to prove you have insurable interest, meaning their death would cause you financial strain. Common ways to prove insurable interest include: 

• Marriage certificates
• Documentations of legal guardianship
• Partnership agreements
• Employment contracts
• Court orders
• Loan agreements

Step two: Get consent from the person you’re insuring

The person you’re trying to insure will need to grant you permission to take out a life insurance policy for them. Typically, they will be required to:

• Sign the application
• Answer health-related questions
• Possibly complete a medical exam
• Potentially speak with the insurance company by phone

Skipping this step or providing false information could be considered insurance fraud or lead to a denied claim down the line.

Step three: Choose the type of policy

The most common types of life insurance are term and permanent life insurance. The best life insurance policy for the person you’re trying to insure will depend on your (or their) budget and how long you expect to need coverage.

Term life insurance is typically the better fit when insuring someone else. It’s affordable, simple, and designed to cover a specific duration (e.g. 10, 20, or 30 years), including while children are dependent or shared debts are being paid off.

Permanent coverage, such as universal life insurance or whole life insurance, lasts a lifetime and includes a cash value component, but it’s more complex and expensive.

Be sure to research both insurance products to compare your life insurance options. Consider the period of time you’d be financially affected by the death of the person you’re trying to insure. If it’s within 30 years, a term policy would be the best option.

Step four: Compare quotes from different providers

Life insurance rates can vary significantly between insurance providers. Life insurance companies use different underwriting processes to assess health risks, so rates can especially vary if the person you’re insuring has a medical condition.

Before you purchase life insurance, shopping around for quotes can help you find better rates and terms for your coverage needs.

Step five: Submit the application and finalize details

Once you have proof of insurable interest, consent, and a policy type in mind, you can submit an application. At this point, you’ll also need to:
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• Name the policyholder: If you are taking out the policy on behalf of someone else, you will be the policyholder and the person you’re insuring will be the “insured”. As the policyholder and owner of the policy, you control the policy. This means you will choose the beneficiary (or beneficiaries) and can update or cancel the policy. Policyholders typically pay for the policy as well, but some companies allow premium payments from another person.
• Choose the beneficiary: The beneficiary is the person (or people) who will receive the tax-free lump sum payout from the life insurance policy. This can be you, a child, or anyone who would facial financial hardship if the policyholder passes away. You can also name an irrevocable beneficiary, who cannot be removed from the policy without your permission.

Can the claim be denied if you buy life insurance for someone else?

Yes, even if you followed the correct steps to set up a life insurance policy for someone else, there are still situations where the insurer may deny the claim.

• Intentional harm: If you or a beneficiary causes the insured person’s death (or attempts to), the insurance provider can deny the claim and cancel the policy.
• Suicide: Most policies include a suicide clause. The payout may be denied if the insured dies by suicide within the first two years of coverage.
• Fraud or misrepresentation: False application information and forged consent can lead to rejected claims, and potentially legal repercussions.
• Suspicion of foul play: If the insurance provider believes the insured person’s death was suspicious or potentially the result of criminal activity, they may delay or deny the claim until an investigation is completed.

Transparency during both the application and claims process is the best way to avoid any issues with payouts. Make sure the insured person is fully involved and informed, and communicate with your insurance provider if you make a mistake or unknowingly provide misinformation during either process. 

FAQ: Can you take life insurance out on anyone in Canada?