CAN ANYONMETAKYEOULTAIPFOLIECYO? N
ILonwabo writes: would like to know how you can find out if someone has taken out life insurance on your life. I feel we have a right to know if somebody else has insured our lives with or without our knowledge. Geraldine Macpherson: legal marketing specialist at Liberty replies:
Certain rules apply when taking out life cover on someone else:
To obtain a risk benefit, a life insured is underwritten. At the very least, this requires the completion of medical questions that will be personal to that individual, so it is highly unlikely that a life policy will be affected on the life of a person without the knowledge and consent of that individual.
For example, at Liberty, we usually require the life assured to sign the application form.
There must be “insurable interest” between the life assured and policyholder – in other words, there must be a sound reason for the cover.
For example, it will have to show that the policyholder will suffer a financial loss if the life insured should die.
A couple of examples are:
Fellow business owners take out life insurance on each other as a means of securing the funding to buy out a deceased or disabled business owner.
An employer takes out key person cover on an employee because if the key employee dies, the employer will need funding to find another employee with the same skills, knowledge or expertise as a replacement, or will have to spend money to upskill someone else and the employer will thus suffer a financial loss.
A life policy is needed to secure a financial obligation, such as a debt. Normally, these policies will be owned by the person who owes the money, but ceded in security to the financier. It is unusual and not standard practice for the financier to actually own the policy.
Interestingly, there is no automatic insurable interest between a parent and a child if a parent wants to take out a policy on a child because you have to prove financial loss – in what way will the parent suffer a financial loss if the child dies?
Likewise, adult children might struggle to prove a financial loss if a parent dies. They will have to prove that the parent was still supporting them or, for example, that they will be liable for taxes they cannot afford. This reinforces the idea that it is not simple to obtain life cover on a third party, even if they are related.