Can I buy a life insurance policy on my tenant?
UPDATED: Feb 11, 2021
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Asked January 26, 2012 by Mathew Sims
Unless you can show an insurable interest for the tenant, such as a close blood relation or some other immediate dependence on the tenant, it is unlikely that you will be able to purchase a life insurance policy for that person or family. Life insurance companies only provide policies if you can show that you will in some way suffer, either emotionally or financially, by the death of the person being insured.
While it may be true that you will lose money if your tenant passes away, a rental property is a form of business, and tenants can be replaced by new ones. This means that you have to fill the rental property with a new tenant, but that is a business transaction, not a cause of financial loss to you. Not to belittle the tenant's death, your loss is not the type of loss that shows an insurable interest, merely a temporary business loss that can be replaced. Unless you can prove that the loss of the tenant would leave the property uninhabitable, you probably would not have an insurable interest.
Now, if the tenant is your parent, sibling, or offspring, you could possibly show that the loss of the tenant would create an emotional or financial hardship for you and that would be an insurable interest. In that situation, you would not be insuring the life of a tenant, but the life of a relative whose death would have a measurable financial impact.
The whole question boils down to having an insurable interest outside of the obvious business transaction. Without a reason for that person's continued livelihood to be important to your own emotional and financial well-being, there is no insurable interest and therefore no grounds under which to purchase the life insurance policy.
Answered January 26, 2012 by Anonymous