Life Insurance Policy Owner vs. Beneficiary

Shawn Plummer

CEO, The Annuity Expert

When purchasing a life insurance policy, there are two main things to consider: the owner and the beneficiaries. Choosing someone may impact your income, end-of-life planning, and estate taxes and offer solutions or create difficulties for your family.

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Life Insurance Policy Ownership

Ownership Rights

A life insurance policy owner can keep or transfer all these rights. Ownership rights include the following:

Owning Your Life Insurance Policy

The most frequent type of ownership is to acquire a policy on your own life. You pay the premiums, are named the insured on the policy, and have complete control over the property rights with an individual policy.

Owning a Life Insurance Policy on Someone Else

Many think about life insurance only when buying it for themselves. But you can also buy life insurance for another person if you have a financial interest in that person.

Spouses and parents have an insurable interest in each other. So does a business when it has life insurance on its key employees or when it guarantees repayment of a loan with life insurance.

Trust-Owned Life Insurance Policy

Many individuals choose to have trusts own their life insurance policies. This arrangement may provide two distinct advantages. First, it enables the trust to manage how the death benefit is spent. Second, if established as an irrevocable trust, it removes death assets from the estate.

What is A Life Insurance Beneficiary?

In the unfortunate event of a policyholder’s passing, their designated beneficiary receives the death benefit payout from their life insurance policy. A life insurance beneficiary can be an individual or an organization. The policyholder can name one or more beneficiaries and specify the percentage of each beneficiary’s death benefit. Therefore, it is essential to keep the beneficiaries updated in case of any changes in the policyholder’s life, such as marriage, divorce, or the beneficiary’s death.

You can choose a beneficiary for your policy, or the policy may pass to the designated person or persons by default. Your estate is typically named as the recipient if you don’t name a beneficiary. Your beneficiary must have an insurable interest in you to avoid income tax consequences while a policy is put on your life.

  • Primary Beneficiary: The person or entity you designate to receive your life insurance benefits when paid at your death is the primary beneficiary.
  • Contingent Beneficiary: The contingent beneficiary is the individual or entity you designate to inherit your life insurance money if the primary beneficiary passes away before you.
  • Revocable Beneficiary: The policy owner can cancel before their death.
  • Irrevocable Beneficiary: The policy owner cannot cancel unless the beneficiary consents. An irrevocable beneficiary can’t change the policy.
  • Multiple Beneficiaries: If you want, you may name as many beneficiaries as required. There are no legal limits on the number of people you can include in your will, and there aren’t many corporate rules either. You may modify your beneficiaries if you still retain your ownership rights. If you name more than one beneficiary, the amount each will get must also be specified.

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Frequently Asked Questions

Can you transfer a life insurance policy to another person?

Yes, you can transfer a life insurance policy to another person. However, you will need to contact the insurance company to ensure that the transfer is allowed under the policy terms. You may also be required to pay a transfer fee.

Can the owner of a life insurance policy be the primary beneficiary?

Regarding life insurance policy beneficiaries, there are two types: primary and contingent. Generally speaking, a primary beneficiary would be your spouse or children – the first people in line to receive the death benefit from your policy.

What is the difference between a joint owner and a beneficiary?

When one of the joint account owners passes away, their share is promptly passed on to their co-owner. By contrast, a designated beneficiary has no authority or possession over this money while its original owner still lives.

Who should be the owner of a life insurance policy?

In essence, it is advised that the beneficiary of an insurance policy be the one to purchase and own it. Therefore, if your loved ones (e.g., spouse or children) pay for the premiums and are designated owners of a policy, its proceeds will not be subject to federal estate tax laws upon death.

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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