Life Insurance & Annuities Forum

Sept. 4, 2007

Can a sister take a life insurance policy out on her brother and collect knowing he was alcoholic and would not live long? She paid his insurance premiums, and she has another brother she took life insurance on at the same time knowing he too is an alcoholic and would not live long.

When the first brother died she collected the death benefit and did not pay for any funeral expenses. "Let the state pay for his death," she said. Not one penny went to the bills that he owed or to his children. She profited on his death this year and will soon on the other brother. Is it legal for this woman to profit from the death of her brothers?

Paula, Illinois

To take out a life insurance policy on someone, you must show that you have an "insurable interest" in that person's life — which means that you must show you stand to lose financially if he or she dies. Different states have different views on what constitutes insurable interest, but generally blood relatives and spouses are considered to have insurable interest. Thus it is perfectly legal for a sister to buy a policy on her brother.

Also, because of the medical examinations that most life insurance companies require, it is very likely that the insurance company knew (or at least suspected) the health risks these two men faced — including alcoholism — and charged the premiums accordingly. (For more information about the medical conditions life insurance companies look for, read The lowdown on life insurance medical exams.)

As far as what the sister has done with the money, because she was the beneficiary of the policy on her brother's life, she is free to do whatever she wishes with the death benefit, and is not legally obligated to pay for the funeral, to give any money to her nieces or nephews, or to pay any of her deceased brother's outstanding debts.

You might advise the surviving brother to consider his sister's actions when making arrangements for his final expenses and the future care of his dependants — perhaps by purchasing a life insurance policy of his own, or by buying funeral insurance (read Tips for buying pre-need and final expense insurance).

If you still suspect that this woman is trying to "put one over" on the insurance company, you could contact the fraud division of your state department of insurance, or call the insurance company directly with your suspicions.

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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.