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Life insurance policy ownership
Find out if you should you own the policy insuring your life, or let someone else own it.
The life insurance policy owner is the person who pays for the policy and has control to cancel or change it. Either the person whose life is insured or the beneficiary can own the policy — and joint policies can have more than one owner. To find the right ownership option for your situation, consider how you and your loved ones are affected by who owns the policy.
Who is the life insurance policy owner?
Typically, the life insurance policy owner is the same person whose life is insured by the policy. However, some beneficiaries opt to take out life insurance on someone else if the person stands to lose money or support when the insured dies.
For context, the beneficiary is the person who receives the payment if the person whose life is insured dies. The person whose life is insured may be called the insured, life insured or person insured.
However, the policy owner can be a variety of people, including:
- Beneficiary. If you take out life insurance on someone else and name yourself as the beneficiary, you’ll need the person’s permission as well as an insurable interest — proof that you’d suffer financially if the insured dies.
- Business. Businesses may take out key person insurance to cover lost revenue due to losing a key employee.
- Cross ownership. Many couples each own a policy on their partner, making the claims process easier if their loved one dies. But you probably won’t want an ex to own a policy on you if you break up or get divorced.
- Joint ownership. A joint policy gives you some control over your policy, though any policy changes must be signed off by both owners. Also, a divorce or breakup can lead to difficulties if your partner doesn’t agree to separate ownership.
- Person insured. Most people own a policy while insuring their own lives, giving full control over their own life insurance.
Responsibilities with life insurance ownership
As the policy owner, you have the ability to make major changes to your policy benefits, including:
- Adjusting coverage, also called the death benefit — Many life insurers let you adjust the death benefit as your life changes, though only universal and variable life let you change coverage levels multiple times.
- Maintaining, renewing or canceling — The policy owner is responsible for paying premiums and deciding whether to renew a term life policy after its end date or cancel coverage altogether.
- Naming beneficiaries — You’ll choose one or more beneficiaries to receive the death benefit when you die, naming the percentages that each beneficiary receives. Most people nominate their spouse or children as primary beneficiaries, but who you choose is up to you. If naming a minor, you’ll need to set up a guardian or trust to manage the funds.
- Transferring ownership — You can choose to let someone else take over the policy, like a spouse or adult child who is caring for you as you age.
- Updating with additional benefits — You and other joint owners can add benefits like coverage for a child, living benefits or long-term care riders.
- Updating account details — You can review your account online or contact your insurer to change your address or the payment method listed, though you’ll need proof for a major update like a name change.
Should I own my life insurance policy?
The decision to own your life insurance policy depends on how much control you’d like over the policy and whether your loved ones benefit from owning the policy themselves. Most people do own the policy that insures their own lives, giving total control over adjusting the coverage, benefits and beneficiaries.
However, the main benefit of letting others own the policy is that they know the details of your coverage and how to file a claim. Every year, many people leave death benefits unclaimed simply because they don’t know about the policy — and life insurers aren’t required to notify beneficiaries.
Common reasons to let someone own a life insurance policy on you:
- It helps a spouse or your children quickly access the death benefit.
- Someone is co-signing a loan for you.
- Your adult child is caring for you as you age.
- Someone depends on you financially.
How to transfer ownership of a life insurance policy
Transferring the ownership of your life insurance policy is a straightforward process. You can follow several steps to make the change.
- Contact your insurance company. Each insurer has forms that you can request to change the policy’s ownership or beneficiaries.
- Complete the form with all required details. The ownership transfer form will need basic information about the new policy owner, including their name, address, social security number and their relationship to you.
- Forfeit legal rights to the policy. Once you submit the form and the change is processed, you won’t have legal rights to update the policy’s beneficiaries, ownership or coverage details.
4 pitfalls to watch out for
As a policy owner, you might make several mistakes that would affect your loved ones’ payout if you die. Those include:
1. Not telling beneficiaries about the policy.
Many loved ones don’t know that they’re named as a beneficiary on someone’s life insurance policy. If you’re insuring your own life, ensure the death benefit gets paid out by letting beneficiaries know about their inheritance. The best time to notify loved ones is right after naming them as beneficiaries.
2. Setting and forgetting coverage.
You want to review your life insurance coverage from time to time, adding coverage or considering a separate policy if you need extra coverage. A good time to review your policy is after major life events, such as buying a house, having children or paying off debt.
For example, if you need a higher death benefit to pay for kids’ college tuition or your mortgage, you could buy another term life policy with coverage that matches the financial need.
3. Not including your life insurance ownership in a will.
If you’re insuring someone else’s life but you die first, your policy ownership can be passed on according to your will. However, if you don’t have a will, state laws would dictate the next steps for the policy. To avoid difficulties for loved ones, give clear instructions in your will about who should own the policy if you die.
4. Not updating the policy if your beneficiary dies.
If a beneficiary dies before the person insured dies, the death benefit passes to other beneficiaries listed on the policy, known as contingent beneficiaries. If all of your named beneficiaries die and you don’t name new beneficiaries, you become the beneficiary of your own policy and the money gets added to your estate.
Avoid confusion about what to do with your death benefit by reviewing your policy’s beneficiaries every few years.
Compare life insurance companies
Whether you’re looking to own the policy by yourself or as a joint owner, compare quotes from different insurers to find the right fit.
You do have different ways of structuring a policy’s ownership. Talk with your loved ones to decide which option works best for you. And to get the best deal on a new policy, compare life insurance providers.
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