Can you take out insurance on someone else for the purpose of buying items from the estate?

Dear reader,

To answer your question, you will need to first establish if an insurable interest exists between yourself and the life assured. Thereafter, it would be best to understand how the assets are to be distributed from the estate. The question you have posed leads me to believe that there is a last will and testament in place, and I am going to assume that it meets the requirements of a valid will.

When taking out insurance on the life of another person, an insurable interest needs to exist between the contracting parties. Insurable interest would be an ‘interest’ that the insured wants to protect using an insurance contract, where the insured would suffer a financial loss should they lose an asset on the death of a person, for example. Insurable interest is usually established through ownership, legal possession, or a direct relationship.

In long-term insurance, insurable interest must be present at the start of the insurance contract. The following relationships would be regarded as insurable interest, for example: a person has an interest in their own life and the life of their spouse; or a child would have an interest in the life of their parents. Once you have established that an insurable interest exists between yourself and the life assured, the next step is to understand how the assets would be distributed in the estate.

During the administration process of a deceased estate, the assets of the deceased person are temporarily under the control of the appointed executor. The executor is required to pay the liabilities of the estate out of such assets and distribute the remainder to the heirs and/or legatees in terms of the will of the deceased. This process should be done in consultation with the potential heirs and beneficiaries. Some of the important factors the executor must consider when preparing a suitable method of liquidation and distribution are the liabilities and how they must be settled, the assets and how they can be dealt with, identifying beneficiaries and the stipulations and directions of the will.

An executor cannot distribute the assets of the deceased until all the liabilities, administration costs and estate duty have been provided for. When an executor must realise estate assets to settle liabilities, they cannot randomly choose any method and must follow a specific sequence of preference. The will often contains specific instructions to the executor regarding a particular method of distribution or realisation of assets or that specific assets must be offered to the heirs for purchase at specific prices. The heirs may instruct the executor in writing to sell the assets and how they may be sold.

When it becomes clear to an executor that estate assets will have to be realised, draft conditions of sale will be prepared for approval by the heirs who have an interest in the assets. One of the more preferred methods of selling estate property where the heirs agree in writing on the sale of assets is through private agreements or a public tender. This method is faster and more convenient than a public auction, and a better price is often obtained for the asset.

It is therefore possible to ensure that you have the capital available to purchase the assets through an insurance policy if an insurable interest exists between yourself and the deceased. It is important to also bear in mind that the distribution of assets will be dependent on the wishes of the deceased as stipulated in the will and at the executor’s/heir’s discretion.