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

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

Florida State’s New President Is Underqualified and Mistrusted. He Just Might Save the University.

  News & Politics
Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
  Business
Moneybox
Sept. 30 2014 7:02 PM At Long Last, eBay Sets PayPal Free
  Life
Gaming
Sept. 30 2014 7:35 PM Who Owns Scrabble’s Word List? Hasbro says the list of playable words belongs to the company. Players beg to differ.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
  Arts
Brow Beat
Sept. 30 2014 8:54 PM Bette Davis Talks Gender Roles in a Delightful, Animated Interview From 1963
  Technology
Future Tense
Sept. 30 2014 7:00 PM There’s Going to Be a Live-Action Tetris Movie for Some Reason
  Health & Science
Medical Examiner
Sept. 30 2014 11:51 PM Should You Freeze Your Eggs? An egg freezing party is not a great place to find answers to this or other questions.
  Sports
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.