As an Aunt, can I buy life insurance on my nephew?
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Asked January 22, 2016
In order to purchase a life insurance policy on someone else, you have to be able to show what is known as an insurable interest. This means that you will suffer a loss, whether it is mental, physical, or financial, if the insured person passes away. Life insurance is typically purchased by the insured or an immediate family member such as a wife, parent or child, but it can also be purchased by any entity, even a business, which can show a potential loss based on the person's death.
It is unusual for an aunt to purchase a life insurance policy on a nephew, but not unheard of. If the aunt is especially fond of the nephew, they have an insurable interest. If the aunt has custody of a minor nephew, they have insurable interest. Finally, if the aunt would experience a financial loss, such as being a dependent of the nephew, then a life insurance policy would be appropriate.
Some types of life insurance make an excellent gift for a nephew. For example, purchasing a simple Final Expense policy would eliminate any concerns about funeral expenses or interment, and could be purchased by an aunt in conjunction with a funeral director. This type of policy does not have any type of cash value for the policy owner, but it is also one of the least expensive life insurance policies available.
More commonly, the aunt would take out a life insurance policy on herself, naming the nephew as the beneficiary of the policy. This would allow the nephew to receive the value of the policy when his aunt passed away. To prevent excessive taxation, this type of policy would be best with a trust fund named as the beneficiary and the nephew named as a recipient of the trust fund.
Answered January 27, 2016 by Anonymous