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Life insurance offers critical cover for loved ones – but can you take it out on behalf of someone else? We consider whether, and when, this can be done.
28 June 2023 · Fiona Zerbst
There may be times that you, as an affected party, need to take out life insurance on behalf of someone of importance to you. Perhaps you are dependent, or you are caring for someone who is.
We explain the concept of “insurable interest” in reference to life insurance, and what this means for the policyholder and the insured person.
Tip: A personal loan can help tide you over if a life insurance payout has been delayed.
In South Africa, there is legal provision to take out an insurance policy on someone else’s life. However, you need to prove that “insurable interest” exists.
This can be based on a business relationship, or a bond of love and affection between you; however, you must be able to prove your financial reliance on the insured person.
“In other words, you must be able to demonstrate that the policyholder would suffer a financial loss if the insured person were to pass away,” says Fred Wagenvoorde, financial planner at Fiscal Private Client Services.
To avoid exploitation or fraud, the following measures have been put in place, notes Shivaan Jugdeo, executive head of client solutions at MiWayLife.
Insurers can use their discretion as relates to these criteria, however.
“For example, an elderly parent may not want cover, but her child is insisting on insuring her for R2 million,” says Janet Brodie-Thompson, chief underwriting officer at Momentum Life Insurance.
“The concept of insurance is not about enrichment, which many people forget,” notes George Kolbe, head of life insurance marketing at Momentum. “It is a de-risking exercise that prevents you from incurring a financial loss and being unable to meet your financial obligations.”
Wagenvoorde offers the following tips for taking out insurance on someone else’s life:
Tip: Savings can provide you with peace of mind in an emergency. Find out about good ways to start saving today.
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