My younger brother is very irresponsible. He has a job with benefits, and he lives only for today. I believe his parasite girlfriend is his beneficiary for the life insurance from his job.
Looking ahead, I’m thinking about purchasing a life insurance policy and disability insurance on him because I don’t want to be responsible for his medical or final expenses. I would list myself, then my daughter, as the beneficiaries. What do you think?
— K.
Dear K.,
It doesn’t matter what I think here. What matters is what your brother thinks and whether he’s OK with your plan.
First things first, though: You typically can’t purchase disability insurance on behalf of someone else. If you wanted to buy a disability policy for your brother, he’d have to apply for the policy, and he would be the beneficiary.
Perhaps you could offer to pay the premiums if your brother buys disability coverage. Since he has a job with benefits, it’s also possible that he has disability coverage through his employer.
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Life insurance is a bit more complicated. You can take out a life insurance policy on someone else, but you need their consent. You also need to have what’s known as an insurable interest on their life. That means you need to show that you’d suffer financially if your brother died.
You may be able to purchase burial insurance, which is really just a marketing term for a small life insurance policy, on your brother with his consent if you’d be responsible for his funeral costs. Typically, these policies have a death benefit of $25,000 or less.
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But to take out a larger policy, a sibling relationship probably wouldn’t be enough to demonstrate an insurable interest. For example, you’d need to show that you depend on your brother for financial support or that you’d co-signed a large debt for him that you’d struggle to pay if he died. In some cases, you’d also be able to take out a life insurance policy on your brother if he’d named you as the guardian for any minor children in his will.
You obviously don’t agree with your brother’s life decisions or his choice of a romantic partner. But it doesn’t sound like you need insurance to protect yourself against them.
As long as you’ve never co-signed debt for your brother, you have zero responsibility for his financial obligations should he become disabled or die. That includes any medical expenses he might accrue at the end of his life. If his estate doesn’t have the money to pay off his debts, your brother’s creditors would simply have to eat the losses.
Think about what you’d do if your brother died tomorrow. Would you want to have a traditional funeral and burial? Or would you be OK with a simple cremation and a memorial service?
If it’s the latter, you may not need burial insurance at all. The premiums are relatively expensive for a small amount of coverage. You might be better off just taking the money you’d spend each month on a policy and putting it in a bank account to cover any end-of-life costs.
A $10,000 policy for a 60-year-old man in good health costs about $50 a month on average. The premiums are even higher if it’s a guaranteed-issue policy, which means every applicant is approved with no health questions asked. Typically, there’s also a waiting period of about two years, which means if the person dies in that period, you only get a refund of the premiums, but no death benefit.
If you still think you need to buy insurance for your brother, obviously you need to talk to him about it. Try not to focus on his lack of planning for the future or his “parasite” girlfriend. Maybe you could fib a bit and say you’re evaluating your own life insurance coverage. You could then ask him if he’s done any disability or estate planning of his own.
Watching a loved one make decisions you disagree with can be difficult. But it doesn’t sound like your brother’s life choices have a major impact on you. I don’t think this is a situation where you need to shell out money for insurance.
Robin Hartill is a certified financial planner and a senior writer at The SS. Send your tricky money questions to AskPenny@thepennyhoarder.com.
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