Quora Answer: Will Life Insurance Companies Pay Out to a Third Party Owner of a Policy on an Unrelated Person as an Investment?

The following is my answer to a Quora question: “Will life insurance companies pay benefits to a third party, who purchased the life insurance on an unrelated person, as an investment?”

That is not possible.  To buy insurance on a third party, there has to be insurable interest, meaning an insurable relationship between them.  For example, a parent may buy insurance on a child who is not a working adult, or a business owner on a person necessary for the business.  A grandparent has no insurable interest on a grandchild.  An aunt has none on a niece, for example.  In the case of total strangers, there is absolutely no relationship that the underwriters will accept, unless there is a proven business relationship.

The reason for this is to prevent insurance fraud and speculation.  Before insurable interest was implemented, people bought insurance on others, and then had them killed for the payout.  In Singapore, there was such a case.  In 1965, Sunny Ang Soo Suan took out a series of insurance policies on Jenny Cheok Cheng Kid, his new girlfriend.  The overall coverage was $900,000 with $400,000 in accident coverage alone.  That is almost $7 million equivalent now.

Jenny Cheok, a waitress earning $90 a month, disappeared in a diving expedition off Sister’s Island, and her body was never found.  A single flipper was discovered, severed at the top and bottom cleanly.  All her policies were nominated to Sunny Ang’s mother, or her estate, which he controlled as executor.  He was found guilty, and hanged for premeditated murder.  Because of cases like this, policies must have insurable interest, and there has to be a financial health review to ensure that coverage is reasonable.

On the other hand, after a certain period, the owner of a policy may assign it to any other person, without requiring insurable interest.  This is an absolute assignment, and must be approved by the insurer’s compliance department.