Insuring another person’s life
[social_share]Most life insurance is taken out by the person on whose life the insurance will pay out on. This is in order to make sure that dependents are covered in the event that the life insurance does not pay out. However the life insurance is often taken out on the life of a third party.
When life insurance was first introduced in London and Amsterdam in the seventeenth century, it was quickly only allowed to be taken out by a person whose life was insured. This was because there had been a spate of life insurance being taken out by unconnected persons and the insured person being assassinated. To stop this spread of murders the authorities banned people from taking out life insurance on another person’s life.
This is no longer the case. It is now perfectly possible to take out life insurance on another person, but there are still some restrictions in that the person has to have some defined relationship to the policy holder and the policy holder must have some type of loss. Insurance companies deal with this and this can explain some of the questions on the forms if the person who is insured is different from the policy holder. These insurance policies can provide a number of useful functions.
Key man insurance is one of these types of life insurance. This is insurance that is taken out by an employer for a very important employee who is vital for the future of the company. The key man insurance can often be taken out by a company that is not the employer, if the employer has a contract with the company that relies on this employee.
If the employee leaves the company before the term of the policy expires then the insurance may very well be kept on and it will pay out if the person dies.
Relatives may also wish to take out life insurance on a main provider. This is starting to become a particularly popular choice with parents of children who care for them or who are financially supporting their parents.
A growing area of life insurance is buying third party policies. This is where instead of simply stopping the payments a policy holder offers the policy up for sale. It is then taken as a speculative investment by a third party. This is not generally covered under regulations about being connected to a person as the life insurance is not taken out, but bought second hand.
