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There may be a common misconception out there that an individual who is insured by a life insurance policy is the same as the owner of the policy. While this is more often the case, the insured individual and the owner of the policy do not have to be the same person.

The Three Main Components of a Life Insurance Policy

A life insurance policy has three main parts to it:

Policy owner. The person who pays for the life insurance policy is the owner and has the freedom to choose the death benefit amount, the term of the policy, and who the beneficiaries are. The owner can change or cancel the policy as they wish and is in control of the policy. The owner can be the person whose life is insured or the beneficiary. 

Beneficiary. The beneficiary is the person who is named on the policy by the owner and will receive the death benefit when the policyholder passes away. There may be more than one beneficiary named on a life insurance policy.

Insured individual. This is the person who the policy is insuring. If the insured person dies within the policy’s term, the death benefit will be paid out to the named beneficiary.

Types of Life Insurance Ownerships

There are a few types of life insurance ownership options available:

Self-ownership. A self-owned life insurance policy is the most common type of life insurance in which the insured individual buys, owns, and has total control over the policy.

Cross ownership. This type of policy is more common among married couples in which each spouse owns the other’s policy. 

Joint ownership. This is a combination of self and cross-ownership whereby you enter into a policy with another individual. You each have some level of control over the policy, but both owners must agree to making any changes before the policy can be modified or cancelled. 

Company policy. A corporation may own a life insurance policy that is taken out for one important person or employee to cover any revenue losses as a result of the loss of that individual.

Responsibilities of a Life Insurance Policy Owner

When you take out a life insurance policy, you will be responsible for carrying out any one of the following tasks: 

  • Paying the premiums
  • Naming beneficiaries
  • Updating the policy as needed
  • Cancelling the policy if warranted
  • Adjusting the death benefit
  • Managing the investment components if applicable

As The Life Insurance Owner, What Policy Changes Can I Make?

There’s no need to make any changes to your life insurance policy if you are satisfied with how it is when you first take it out. However, you do have the freedom to make modifications at some point throughout the term if you are the owner of the policy. The changes you can make include the following:

  • Policy owner
  • Beneficiary
  • Name on policy
  • Insured amount
  • Premium payment frequency
  • Address on the policy

It should be noted that certain changes may warrant tax implications, such as changing policy owners. You may want to speak with a tax specialist to help you determine if that’s the case with the changes you plan to make before you make them. 

What Happens if The Life Insurance Policy Owner Passes Away?

The answer to this question depends on whether or not the owner of the policy is also the insured individual. If one person is both the owner and the insured, the death benefit detailed in the policy will be paid out to the named beneficiary, and the policy will end. 

But if the owner and insured are two different people, the policy ownership would become part of the estate, in which case a number of things could happen. If there is an owner designation named in the policy, that individual would take it over. Or, the policy could be passed down to the owner’s family according to the will of the deceased. 

If no one is mentioned in the will, then the ownership of the policy would be passed down to the primary recipient of the estate as dictated in the will. Otherwise, if no will exists, the courts will determine ownership.

What Happens if The Beneficiary Passes Away?

If the person named in the policy as the beneficiary passes away before the insured individual does, then the death benefit payment will be passed on to any other beneficiary on the policy. If all beneficiaries die before the insured, then the benefit will be paid to the insured’s estate. 

Can There be More Than One Beneficiary Under a Policy?

Yes, more than one beneficiary may be named on a life insurance policy. Usually, beneficiaries include a spouse and children. You can also assign a specific percentage of the death benefit to each beneficiary in your policy. 

Further, contingent beneficiaries can also be named who will receive a death benefit payout if your primary beneficiaries pass away before you do.

Can Anyone be a Life Insurance Beneficiary?

Yes, you can name anyone as your beneficiary. While spouses and children are more often named, anyone else can be named. It’s entirely up to you. It should be noted, however, that if a minor is listed, a trust or guardian will need to be assigned to receive any payouts. 

Can You Change The Owner of Your Life Insurance Policy?

As the owner of your life insurance policy, you have the option to transfer ownership to someone else. To do this, you will need to inform your insurance provider of the change and provide them with all the pertinent personal information of the new owner, including their name, address, social insurance number (SIN), and relationship to you. 

Final Thoughts

Having a life insurance policy in place can help ensure that your loved ones are taken care of financially in the event that you pass away while life’s big bills are still unpaid. But it’s important to understand all the nuances of these policies, namely, the policies’ ownership. While the insured is usually the owner, it’s also possible for the policy’s owner to be different from the individual insured. 

Caitlin Wood avatar on Loans Canada
Caitlin Wood

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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