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LIFE Insurance
LIFE INSURANCE INSIGHTS

Secret life insurance policies are rare, but this type of insurance fraud does happen. Protect yourself by following the measures mentioned in this guide.

Secret life insurance policies are a common plot point on TV and in movies. But could you have a life insurance policy and not know it?

About 60% of Americans have some form of life insurance. Most of them likely either went online or an insurance agent helped them find a policy that fit their coverage needs.

However, there are instances when someone can fraudulently take out life insurance in your name. These cases are rare, but insurance fraud does occur.

Here's what you need to know to prevent this from happening to you.

KEY TAKEAWAYS
  • It's possible that someone can secretly take out a life insurance policy in your name. However, it is rare and not that easy.
  • You don't have any rights to cancel the life insurance policy taken in your name. Only the person who owns the policy can drop it.
  • To find out if someone has taken out an insurance policy on you, go through your personal documents for life insurance coverage or contact your state insurance department.
  • Work with the insurance company to resolve the issue, if you come to know that someone has taken out a life insurance policy on you.

What is insurable interest?

If you have an insurable interest in someone, means it would leave you with financial loss or hardships should they die. Hence, for you to be considered a beneficiary on their life insurance policy or to be able to take out a policy on someone you will have to show an insurable interest.

It is noteworthy that even if you have an insurable interest, you will require the consent of the person you are planning to insure. However, there are some exceptions- like you are allowed to take out a life insurance policy on your minor child.

How a life insurance policy works?

A life insurance policy is a contract between an insurer and an individual. The policy itself typically insures the individual who bought it, but it can insure someone else as well, such as a child or a business partner.

When the insured person dies, the policy pays out a predetermined amount to the policyholder's beneficiary.

The two main types of life insurance policies are:

  • Term life insurance: Term life provides coverage for a specific period or term. If the insured policy dies within the term, the life insurance policy pays out to the beneficiaries. Otherwise, it simply lapses at the end of the term.
  • Whole life insurance: This type of permanent life insurance policy remains in place for the insured’s lifetime as long as he or she pays premiums. Unlike term life insurance, a whole life insurance policy doesn’t expire after a specific period.

Learn more about How a life insurance policy works

Can someone secretly take out a life insurance policy on you?

You may wonder, “Can someone take out a life insurance policy on me without my knowledge?” It's possible but very unlikely. There are protections in place during the life insurance application process that make this difficult.

What do you need to get life insurance on someone? Most life insurance companies require:

  • A medical exam
  • Your medical information
  • Your consent in the form of your signature

"Although secret life insurance policies are not common, they are possible,” says attorney Ryan Stump of Randall & Stump, PLLC, which frequently represents clients facing insurance fraud and other fraud or criminal charges related to life insurance.

Most life insurance policies require a medical exam, but some only demand a signature of the person to be insured, he says.

“Such policies can be taken out illegally by someone forging a signature and not informing the person who is the subject of the insurance policy," Stump says.

Insurable interest is another safeguard that reduces the potential risk of a secret life insurance policy.  get life insurance on you? It must be someone who will suffer a significant financial loss if you die. In this case, a spouse, a close family member or even a business partner may have an "insurable interest" in you and be able to insure you lawfully.

Who can you legally buy life insurance for?

Can you take out a life insurance policy on anyone? No. To take out a life insurance policy on someone else, you must have a financial insurable interest in that person.

“Put simply, this means that this person’s death would adversely affect you,” says Brian Bayerle, senior actuary at the American Council of Life Insurers.

An example includes

Examples include-

Spouse- To take out an insurance policy on your spouse you should have insurable interest and their consent. But it makes sense to buy a life insurance policy on your spouse if you're a breadwinner and your spouse has no income.

Child- Life insurance can be purchased on a minor without their consent, but if the child is 18 or older you will need to get a confirmation from them.

Business partner- In a business partnership, it is not uncommon for one partner to purchase life insurance on the other. If the first partner should pass away, that payout can then be used by their surviving family members or partners in order to buy out those shares and take over ownership of said company.

Aging parents- If your parents are getting old and they don't have any life insurance policy in their name, you can take out insurance policies that will cover their final expenses and funeral costs.

You may wonder, “Can I get life insurance on my boyfriend or girlfriend?” It’s possible if you can prove to the insurance company that an insurable interest exists. For example, if you share a home or child with a person to whom you’re not married, you might qualify for coverage.

How to buy life insurance for someone else?

Can you take out a life insurance policy on someone without their knowledge? No. Before you buy life insurance for someone else, understand that the person must meet certain criteria.

You must have an insurable interest in that person, meaning their death would have a negative financial impact on your life.

The insurance company is unlikely to simply take your word for it. Instead, it will ask for proof. The life insurer likely will look into the relationship between you and the insured.

Do you need permission to get life insurance on someone? Yes, because the insured must agree to your decision to purchase the policy.

“Taking out life insurance on someone else also must be done with their knowledge and consent,” Bayerle says.

The insured likely will need to submit to a medical exam and may have to answer questions asked by the insurance company.

From that point forward, the life insurance policy should work like any other life insurance coverage. As long as the premiums are paid and you meet all contract terms, the benefit will be paid out upon the insured’s death.

When you shouldn’t take a life insurance policy on someone else?

It doesn’t make sense to try to take out life insurance on someone if you don’t have an insurable interest in them.

Remember, the person’s death would need to cause financial distress for you. If your best friend were to die, you no doubt would be emotionally devastated. But emotional distress doesn’t meet the criteria necessary to create an “insurance interest.”

And even if you have an insurable interest in the person, that isn’t sufficient. To complete the purchase of a life insurance policy on someone else, that person must be willing to go through the insurance process.

The insurance company likely will ask the person questions that need to be answered. In addition, the insured will need to submit to a medical exam, which might include:

  • A check of vital signs, including blood pressure and pulse
  • Measuring of height, weight and body mass index
  • Collection and analysis of blood and urine samples

How to avoid doing anything fraudulent?

There are two keys to making sure you don’t purchase a life insurance policy on someone else that ends up being potentially fraudulent:

  • You have to show you have an insurable interest in the person
  • You must receive the consent of the person

“The process of applying for life insurance makes it difficult to take life insurance out on someone without their knowledge,” Bayerle says.

In most cases, the life insurance company will require the person being insured to have a medical exam to determine their insurability and help set premiums for the policy, Bayerle says.

In addition, the person being insured will have to sign the application and give consent, he adds.

Can you cancel a life insurance policy someone has on you?

No, you typically can’t cancel a life insurance policy someone has on you.

The person who took out the policy owns it. The person whose life is insured doesn’t have any right on the policy, so you can’t cancel it.

However, you may see if the person will transfer ownership to you. This might happen if your parents took out a life insurance policy on you when you were a child.

Can you get life insurance on a spouse?

You can take out a life insurance policy on your spouse if you have an insurable interest. In other words, if a person's death would cause you significant financial hardship, it's an insurable interest.

It’s a good idea to get the spouse’s OK and go through the normal life insurance process of having the spouse get a policy and name you as a beneficiary.

How do I find out if someone has taken out life insurance in my name?

If you’re wondering how to find out if someone has life insurance on you, Stump says you can do several things to uncover a fraudulent policy on you, including:

  • Pay attention to marketing or educational materials in the mail from an insurer with whom you haven't signed up for coverage. The insurance company may send you mailings to sell additional services. There may be a fraudulent policy in your name if there's a reference number on any of these materials.
  • Check your bank account for regular payments to a life insurance company. Payments to the insurer may appear in your account if a family member perpetuates this crime or you're the victim of identity theft.
  • Look through your personal documents for life insurance coverage. If your spouse was offered group life insurance through his or her employer, for example, it's possible he or she could have insured you without your knowledge. If you’re going to be separated or divorced soon, it's likely the policy is still intact. It's also possible your parents could have a policy in your name without you knowing. They may have received a policy when you were a minor and kept it once you reached adulthood.
  • Contact your state insurance department and ask them if your state has a special fraud bureau that investigates insurance fraud. You can call your state insurance department to register a complaint if you suspect fraud.

Also, check the Medical Information Bureau's (MIB) website to find out if there's a secret life insurance policy in your name. MIB houses files on consumers who have applied individually for life or health insurance in the last seven years.

If you see the name of an insurance company you don't recognize, follow up to find out whether you're insured with them.

What to do if you find out a policy exists on your life?

If you discover a life insurance policy on you, your best and first line of defense is to work with the insurance company to resolve the issue. If they're uncooperative, contact the police and your state insurance department.

Insurance fraud is a serious crime. Stump says someone who obtains an illegal life insurance policy could face jail, probation or a significant fine.

"Depending on the depth of information that the perpetrator provided, they could also be on the hook for identity theft, wire fraud, or mail fraud," he says. "If the action involves people in different states or transactions across state lines, it could even be a federal offense. This would result in time in federal prison and additional fines."

Secret life insurance policies are rare, but this type of insurance fraud does happen. Protect yourself by following the steps we've outlined to minimize the likelihood that someone garners a big insurance payout at your expense.

What to do if you took out a life insurance policy on someone else and no longer want it?

Canceling a life insurance policy is straightforward. You simply inform the life insurer that you no longer want the policy and then stop paying premiums. If you have term insurance, the policy simply will end at that point, and you no longer will have coverage.

If you have a whole life policy, you’ll receive the cash value amount, minus any fees that are due. Such fees often are known as a surrender charges.

Can I get life insurance on my parents without them knowing?

You can get a life insurance policy on your parents but you will need their consent. Many people buy Final expense insurance policy to cover their parent's final expenses and funeral costs.

Taking out a life insurance policy on your parents without their knowledge would be considered fraud. Nowadays most of the insurance policies are designed in a way that you would not be able to insure a person without them knowing.

When must insurable interest be present for a life insurance policy to be valid?

For a life insurance policy to be valid, insurable interest should be present at the time you are purchasing the policy. Therefore, you cannot take out a policy on anyone unless you have an insurable interest in the person you want to insure.

How to find out if life insurance policy is still valid?

You should be able to find out if the policy is still valid by simply contacting the company that issued your life insurance policy. Even though some time has passed since the premiums have not been paid, but you may be able to receive a return on your investment with dividends.

You may be faced with the decision to cash out your life insurance policy, if the policy is still effective. The insurance company will want proof of ownership before they'll pay up on a claim. Keep in mind that there is usually an expiration date for these policies anyway.

Pros and cons of buying life insurance for someone else

There are both pros and cons to buying life insurance on someone else.

Pros include:

  • You will receive a death benefit that can help you cover bills and other life expenses should someone you depend on for income dies.
  • The process is relatively easy, with the insured simply agreeing to submit to some testing and to answer a few questions.
  • Both you and the insured person will feel more secure knowing that you will be financially protected in the event of your death.

The cons of buying life insurance for someone else include:

  • It’s impossible to secure a policy if the person you want to insure doesn’t agree to your plan.
  • The person you would like to insure will have to submit to a medical exam.
  • The money you spend insuring someone’s else’s life might be better spent on other things.

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