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 have an impact on your income, end-of-life planning, and estate taxes, as well as offer solutions or create difficulties for your family.

Life Insurance Policy Ownership

Ownership Rights

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

Owning Your Own Life Insurance Policy

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

Owning a Life Insurance Policy on Someone Else

Many people think about life insurance only when they are 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 takes away death assets from the estate.

Life Insurance Beneficiary

The person or entity who will receive the money after you pass away is known as the beneficiary.

You can choose a beneficiary for your policy, or the policy may pass to the designated person or persons by default. If you don’t name a beneficiary, your estate is typically named as the recipient. 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 they are 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 at any time 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 at any time if you still retain your ownership rights. If you name more than one beneficiary, the amount each of them will get must also be specified.

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Shawn Plummer

CEO, The Annuity Expert

I’ve sold 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. 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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