Can I Take Out A Life Insurance Policy On Someone Else?

Every once in a while I will be having a conversation with someone who wants to know if it is possible to insure someone else, like an acquaintance. When this happens I don't really know if they are kidding or not, but I ask if there is some sort of relationship there between the two of them. Usually the answer is "no, you can't" which seems simple enough but people ask why.

Can you imagine the madness that would ensue if people just went around insuring the lives of people they didn't know but "looked sick"? And if insurance companies had to pay those claims they would be out of business quickly. 

There are some guidelines (and reasons for them) when it comes to insuring other people. One of the basic rules for this is that there must be an insurance interest. In other words, before you take out a policy on someone else, you must have a relationship, either familial, personal or financial, with that person. Of course we can take out a policy on a spouse or child, as people do that all the time.

And if you borrow money from a financial institution or an individual, they may require a policy to secure the loan. That is considered acceptable as well. 

Another piece of this is that most states forbid insuring someone over the age of 16 without their knowledge.  But if the insured is over 16 they must sign a form acknowledging they are being covered. This rule applies even if the insured is your 18 year old child.

Back in the old days big companies would buy life insurance policies on all of the employees, with the company being the beneficiary. The thought process was that if the employee died there would be "transition costs" associated with finding a replacement. These Corporate Owned Life Insurance (COLI) policies became controversial when family's in need began learning that the death of their loved one was profitable to their deceased loved one's employer.

The issues arose (as well as lawsuits) when the insureds were no longer in the employ of the company. At that point, any insurable interest went out the window. In the early 2000's several of these types of legal issues got some news publicity which shined a light on how many large corporate companies were secretly adding to their bottom lines.

Nowadays, COLI's are still used, but not covering every employee, including the janitor. (They were actually called "janitor policies" because of this). More often than not, COLI's are used to cover the lives of the top brass, like the board of directors or top executives, who are supposedly fully aware of the policy. I have even heard that the beneficiaries of the policies are split among the company and family members. That sounds much fairer.

With all of that said, here is a short list of people you can insure:

• Family. When the life insurance agent asks what your relationship is to the insured, immediate family is a no-brainer. Be aware that there are limits on insuring children but otherwise you should be okay.
• Former family. As in ex-spouses. If there are children involved the court may order that you maintain a life insurance on your former spouse to help with expenses if the former spouse should die.
• Parents. Yes, they are family but they may have let their life insurance policy lapse or expire and a final expense plan may be the best answer.
• Business partner. Buy/sell agreements are usually written up between business partners to help ease with the transition of responsibilities when one of the partners dies. These agreements are usually funded by a life insurance policy so one partner can buy out the deceased partners ownership. 
• Key employees. Key employees are the ones who contribute significantly to the business or may have some highly specialized skill. These people are difficult to replace and if they die unexpectedly the company could take a financial hit.

If you have any questions about any of these scenarios, ask your agent or drop us a note in the comments. In the meantime, stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Is Selling Insurance Hard? Pt 2

In the previous post I went over a few facets of what makes selling insurance, life insurance in particular, a difficult job. There is a hesitancy from people to purchase something they know they need, but generally speaking, do not want to purchase. In essence, asking someone to add to their monthly bills to protect their family from financial ruin is a hard job.

One of the many objections agents get when selling life insurance goes something like this. "I want to talk to the wife (or my husband, partner, significant other) before making a decision. I may need a few weeks." Where do I begin?

First, I have rarely met a spouse who did not want to be named a beneficiary on a life insurance policy. And by "rarely", I mean never. As a smart agent once proclaimed, "Wives hate life insurance but widows love it." 

A few years ago I met a woman who was in dire financial straits. Her husband had left his well paying job to start his own business. In doing so, he borrowed some money to get his business off the ground. The wife was fully aware of the situation and insisted he purchase a life insurance policy to cover the debts he had incurred if he were to die unexpectedly. He told he would "get around to it." 

After a few months went by, he told his wife that he had bought a policy. She never saw the paperwork or a policy but assumed that he was telling the truth. Not long after, the husband was clearing out some trees near their home when a log fell on him, crushing him to death. 

You can figure the rest out. There was no policy. She couldn't afford to repay the debt and lost her home. She was forced to take a small apartment and, even though she had been out of the job market for a long time, had to take a job as a teacher's aide in a high school. When I spoke with her she broke down in tears several times from the stress that could have been avoided if her husband had just purchased that policy.

When someone says they'll get around to it later, I share that story with them. And I make sure that their spouse or significant other is present to hear it as well. 

The other objection I deal with is "I need a few weeks to think it over". The logic is that if I have a few weeks to think rationally I will decide if I need a policy. This is one of the most ridiculous things I have ever heard. Did they need a few weeks to decide on the purchase of a TV, cell phone or clothing? Or how much time did it take to decide to drop $7 on coffee, which they do often? 

Imagine someone dropping $50 each month on coffee but not wanting to spend $35 to protect their family. As stated previously, the priorities are all out of whack.

So when the prospect claims they need a few weeks, I let them know that the insurance company will also need a few weeks to decide if they will approve them and what the rate will be. I will encourage them to start an application which can be submitted with no money. "That way the underwriting process can begin and a paramed exam can be completed in the meantime. And by the way, we pay for the exam as well, so you won't have to pay anything until the insurance company has done their due diligence. And that process could take a few weeks," I say. "So while you're thinking it over, so is the company."

People think of insurance agents as being high pressure sometimes. Personally, I feel that the vast majority of agents are trying to do the best thing for their clients and sometimes that requires "good pressure". And in the end, the beneficiaries of that policy are thankful for the agent's work. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Is Selling Insurance Hard? Part 1

Sometimes being a life insurance agent is difficult. It's hard to find prospects and talk them into meeting with us, much less presenting them with a plan they need but don't really want. Not many people want to acknowledge that they should buy a plan that, even though is in the best interest of their family, will add another monthly bill to their stretched out budget.

When I speak to people who sell other products or services I have to explain that insurance isn't like selling a car or a home. Those are things that people want and will actually save up for. No one saves up for life insurance or long term care insurance.  Let's face it, insurance is the one thing people buy hoping they never have to use it. 

With that in mind, you can understand why life insurance agents come and go. The person who sold you a policy ten years ago may not be with that company anymore. Heck, they may not be in the industry either. The persistency rate of agents after three years is about 10-12%, depending on whom you ask. That means that if a company hires 100 new agents today, three years from now maybe a dozen of those people will still be around. 

What makes it so difficult? There are several reasons, but it usually boils down to people who have their priorities out of whack. Not always, but often when I sit down and talk to a young couple with kids and a mortgage, it doesn't take long to realize that their "live in the moment" philosophy is great for some things, but not for insurance purposes. They want to have all of the new gadgets and devices, like phones and cars. I had one young man ask me, "What's the point of working to make money if I can't enjoy it?" 

Yes, selling insurance can be like pulling teeth.  So I have to paint a picture for them. First I have to dispel the myth that they will live forever. "Have you ever known anyone your age who has died?" I ask. It can be a dark subject but my goal is to let them know that things happen. A car can cross the center line at any time ending someone's life. A serious disease could suddenly arise. Things happen.

Typical questions I ask run like this:

• What would you do if your significant other should die suddenly?
• How would your family be able to pay the bills?
• Would your family be able to stay in their home?
• Would you be able to care for the kids and work at the same time?
• How much are you willing to pay to make sure your family will be okay?

Let's assume that I got through to this young couple. We all agree that they need some coverage and they have given me a budget to work within. A week later I return with a few options and present them. There is no "high pressure" selling here. Just a recap of what we have previously discussed and what I have to offer. Then it happens.

 

"I think we need time to think about it. Maybe a week or so." Punch in the gut. I'm pretty sure they didn't need a week to consider that nice phone in their pocket. But I have an answer for that one. 

 

Stay tuned and in the next installment I'll explain why it's okay to need a week or so to think about it. In the meantime, please stay healthy.  

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!