Can I take out life insurance on someone I don't even know?

Answers to your questions about the news.
April 16 2008 7:11 PM

Can I Buy Life Insurance on a Stranger?

Not unless you have "insurable interest."

Olga Rutterschmidt and Helen Golay. Click image to expand.
The accused: Olga Rutterschmidt (left) and Helen Golay

A California jury is debating the fate of two elderly women accused of befriending a pair of homeless men, taking out millions of dollars in life insurance on them, and then killing them. Prosecutors charge that the women collected nearly $3 million from the insurance policies and were seeking to collect more when they were arrested. Murder aside, are you allowed to buy life insurance for someone else and then hope they die?

Not if he's a stranger. A federal law enacted in 1945 leaves the regulation of the insurance industry to state governments, so the rules vary from place to place. In most cases, the owner of a policy * has to demonstrate that he or she is dependent in some way on the person whose life is being insured. This is known in the business as the "insurable interest" doctrine and has origins in common-law practice. In California, the rule is written outin the official books and grants insurable interest between a policy owner and "any person on whom he depends wholly or in part for education or support," as well as other relationships involving a financial stake, like if the insured person owes the policy owner money.

Advertisement

The two California women currently on trial are alleged to have claimed some relationship to the two homeless men; one is said to have posed as a relative when she claimed a body. A federal grand jury originally charged the pair with attempts to defraud insurance companies, but that case was dismissed when the state initiated murder charges.

The insurable-interest doctrine originates from similarly devious schemes in England in the mid-18th century. When the British Parliament passed the Life Assurance Act in 1774, it acknowledged that the opportunity to insure a stranger would create a "mischievous kind of gaming" that allowed one person to profit from the death of another.

The scheme ascribed to the ladies in California is far from original. A 2002 article in the Nevada Law Journal recalls a 1954 case in which a man named Henry Lakin hired a transient World War II veteran named W. Harvey Hankinson to do odd business jobs and then quickly established him as a business partner. Lakin took out a life insurance policy on Hankinson and then brought him on a hunting trip to Pleasant Hill, Mo., from which only Lakin came back alive. There wasn't enough evidence to prove that Hankinson had been murdered, but the insurance company was able to invoke the insurable-interest doctrine and void the policy.

Most cases of fraud are not as clear-cut. Many insurance companies and senior-rights groups are concerned about "stranger oriented" or "stranger owned" life insurance, in which investors approach an elderly person and offer him cash or other incentives to sign up for a plan. In return, he agrees to transfer the plan over to the investors after a two-year delay, which is enough time to skirt industry regulations. It's not clear whether this scheme is legal, since the elderly are, in fact, taking out life insurance on themselves—which doesn't run afoul of the insurable-interest rules.

Got a question about today's news? Ask the Explainer.

Explainer thanks the California Department of Insurance, Robert Jerry of the University of Florida Levin College of Law, Susan Nolan and Mike Humphreys of the National Conference of Insurance Legislators, and life-insurance consultant Anthony Steuer.

Correction, April 22, 2008:This article originally stated that beneficiaries of a life insurance policy must be dependent on the person whose life is insured. It is the owner of the policy who must be dependent on the insured person. (Return to the corrected sentence.)

TODAY IN SLATE

Medical Examiner

Here’s Where We Stand With Ebola

Even experienced international disaster responders are shocked at how bad it’s gotten.

Why Are Lighter-Skinned Latinos and Asians More Likely to Vote Republican?

A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

The XX Factor
Sept. 22 2014 12:29 PM A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

Subprime Loans Are Back

And believe it or not, that’s a good thing.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

  News & Politics
Politics
Sept. 22 2014 6:30 PM What Does It Mean to Be an American? Ted Cruz and Scott Brown think it’s about ideology. It’s really about culture.
  Business
Moneybox
Sept. 22 2014 5:38 PM Apple Won't Shut Down Beats Music After All (But Will Probably Rename It)
  Life
Outward
Sept. 22 2014 4:45 PM Why Can’t the Census Count Gay Couples Accurately?
  Double X
The XX Factor
Sept. 22 2014 7:43 PM Emma Watson Threatened With Nude Photo Leak for Speaking Out About Women's Equality
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
  Arts
Brow Beat
Sept. 22 2014 9:17 PM Trent Reznor’s Gone Girl Soundtrack Sounds Like an Eerie, Innovative Success
  Technology
Future Tense
Sept. 22 2014 6:27 PM Should We All Be Learning How to Type in Virtual Reality?
  Health & Science
Medical Examiner
Sept. 22 2014 4:34 PM Here’s Where We Stand With Ebola Even experienced international disaster responders are shocked at how bad it’s gotten.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.