"I think my neighbor has taken out an insurance policy on me. Can he do that?"
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"How do I find out if my son-in-law
has a secret life insurance policy
on my daughter?"
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Above are real reader questions received by Insure.com. Secret life insurance policies are an alarming idea — but can it be done? "Except
for fraud, chances are relatively rare," says Brian Ashe, an insurance
professional and past chairman of the Life and Health Insurance
Foundation for Education. There are a number of obstacles that would
impede someone from taking out a secret policy on someone else,
including:
- Most life insurance policies
require a medical exam of the person being insured. You would surely be
tipped off by a paramed examiner coming to your home and taking your
blood samples.
- Most policies require you to sign a consent for release of your medical information.
- Insurance companies make sure that the person buying the
policy has an "insurable interest" in the insured. Ashe says there
needs to be an insurable interest evidenced by blood, marriage or
business relationship — for example, someone who relies on the income
of their spouse. Your neighbor would not be able to show he has a
financial interest in your life.
- Even policies that don't require a medical exam will require the signature of the insured.
"Hopefully they would have been aware of what they
signed," says Ashe. "There’s oftentimes a follow-up phone call from the
insurance company or agent to make sure information on the application
is correct and verify income and basis of need. So I’ve signed an
application, I’ve received a follow-up call verifying the information,
and the insurance company will ask if an insurable interest exists
here." All things considered, it would be pretty hard to sneak through
a secret policy.
But there are ways it could be done, says Ashe.
Outright fraud would be one way; for example,
someone intercepting all insurance company correspondence and forging
your signature.
Also, if a parent buys a policy on a child younger
than 15 insurance company does not require the child's signature.
When that child becomes an adult, it's possible he may not know that
his parents hold a policy on him if he's never told.
If you have group life insurance through work with
the option to add coverage for your spouse, it's possible to sign up
your spouse without his or her knowledge. Cliff Wilson, president of
the National Association of Insurance and Financial Advisors, notes
that group life insurance amounts are usually not substantial.
And up until 2006, companies were allowed to buy
life insurance policies on employees without the employees' knowledge
or consent. The policies paid out benefits to the employer in the event
of an employee death. But uproar over these "dead peasant" policies
("An unfortunate name," notes Ashe), put an end to that. Now
business-owned life insurance policies must have the consent of the
insured, too.
So, you can rest assured knowing that no one is going to receive a big life insurance check without your knowledge.
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