Life insurance is a common estate planning tool as it provides liquidity in an estate. That liquidity can be used to pay estate taxes or equalize an estate. Let's say Mr. Smith has two sons. Son 1 works with him in the business and wants to take over the business when dad passes. The business is worth $5 million. Mr. Smith will leave the business to Son 1. Son 2 has no interest in the business. So how can Mr. Smith treat his sons equally in his estate plan? A simple answer is for Mr. Smith to purchase a life insurance policy payable to Son 2 for $5 million. Each Son then inherits an asset worth $5 million in this simplified example.
But what if Mr. Smith has a heart condition and he cannot get life insurance; he is uninsurable. One answer is to obtain a joint policy with Mrs. Smith. Often called survivorship policies or second-to-die policies, these policies insure two people. But the insurance company bases the issuance of the policy on the healthier of the two parties. So even if Mr. Smith is ill, if Mrs. Smith is in fair to excellent health, the insurance company will place their "bet" on Mrs. Smith as the policy pays off when the second of the two insured parties die. And since Mrs. Smith looks sure to outlive her husband, the insurance company is really taking their risk on Mrs. Smith.
What if Mr. AND Mrs. Smith are both in poor health and uninsurable. Do Mr. or Mrs. Smith have any siblings about their same age? If so, are these people insurable? If these siblings are amenable, they can have the insurance placed on their life payable to Smith Son 2. The reason this makes sense is that Mr. Smith's objective is that each son get the same amount of assets "around" the time of his death. If Mr. Smith is 70 and he has a brother is 72, they have similar life expectancies. If the insurance is placed on the brother, Son 2 will receive the $5 million at the death of his uncle (rather than at the death of his uninsurable father). But Mr. Smith’s objective is attained this way.
The point here is not to get hung up on the health or insurability of a specific person. Look to see if there are other relatives of the same age group that are insurable to pursue an estate planning objective.
Also be aware that insuring the uncle may bring up an "insurable interest" question by the insurance company. A person has an "insurable interest" in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. For purposes of life insurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouses and dependents. But Son 2 does not have an obvious insurable interest in the life of his uncle. However, if the facts are presented to the insurance company and the family's overall objective to equalize an estate for the next generation, the insurance company will likely accept this arrangement.