The owner of a life insurance policy has a critical role. You have control over it and are responsible for paying the premiums.
In this guide, we’ll explore the different life insurance policy parties and their roles, the responsibilities of policy ownership, and who should own a policy.
Table of Contents
- The Basics of Life Insurance Ownership
- When Should Owners Review Their Policies?
- Should You Own Your Life Insurance Policy?
- How to Transfer Ownership
The Basics of Life Insurance Policy Ownership
Understanding who can own life insurance and how ownership works is essential, regardless of your role in a policy.
A life insurance policy generally involves three key parties:
- Owner: The individual who purchases and controls the policy. They are responsible for its continued payment and upkeep.
- Insured: The individual whose life is covered by the policy. Should they pass away while the policy is active, their beneficiary receives a payout.
- Beneficiary: The person or people designated to receive the payout (or death benefit) when the insured dies.
Who Can Own a Life Insurance Policy?
You don’t need to be the insured on the policy to be the owner. Depending on the needs and specific situation, various entities and individuals can own a life insurance policy.
- Individuals: Adults who are of legal age (usually 18 or older) and have the mental capacity to understand the terms of a contract can own policies on themselves or others, like family members, to whom they have an insurable interest.
- Trusts: Trusts can be set up to own life insurance policies, often as part of estate planning. This can provide control over the proceeds and may offer tax advantages.
- Businesses: Companies may own policies on key employees, partners, or shareholders. This can be part of succession planning, employee benefits, or agreements between business partners.
- Charitable Organizations: Some people choose to make a charity the owner of a life insurance policy, which can be part of charitable giving strategies.
- Spouses and Family Members: Cross-ownership between family members, such as spouses owning policies on each other, is also common.
Policy Owner vs Insured
In a life insurance policy, it’s common for the owner and insured to be the same person, but this isn’t always the case.
Policy Owner’s Rights and Responsibilities:
- Right to name or change beneficiaries
- Right to transfer ownership
- Right to cash value and dividends, if applicable
- Responsible for paying premiums
Insured’s Rights and Responsibilities:
- If the insured is also the policy owner, they will have all the rights and responsibilities associated with policy ownership.
- Even if they aren’t the policyholder, they may have rights outlined in the policy.
- The insured must provide honest and complete information during the application process.
- They may also have obligations related to maintaining specific health or lifestyle standards if stipulated by the policy.
Designating Beneficiaries
It’s also a common scenario for the policy owner and beneficiary to be the same person. But many times, people buy a policy on themselves for the benefit of someone else.
Things to know about designating beneficiaries:
- If you don’t specify a beneficiary, the death benefit goes through probate to settle your estate.
- Always name contingent beneficiaries as a backup if you and your primary beneficiary die simultaneously.
- Listing minor children as beneficiaries can create legal complications.
- Don’t list individuals with special needs as direct beneficiaries, as it may affect their government benefits.
- Include detailed beneficiary information to prevent any confusion or disputes.
- Clearly define how much money you want each beneficiary to receive.
- Beneficiaries are responsible for submitting a death claim after you pass.
Learn about the various clauses and exclusions your policy may have to ensure your beneficiaries get the full death benefit.
When Should Owners Review Their Policies?
Life insurance isn’t a set-it-and-forget-it purchase. Life can bring many changes, which may require changes to your coverage.
Here’s when and why you might need to review and modify your policy:
Marriage or Divorce
- Situation: Changing marital status may necessitate a review of beneficiary details.
- Risk: If overlooked, an ex-spouse might remain the primary beneficiary, excluding the current spouse.
- Solution: Regularly review and update your policy to reflect marital changes.
New Child
- Situation: Adding a child to the family through birth or adoption could require more coverage.
- Risk: Without sufficient coverage, your children might not be financially protected.
- Solution: Consider increasing coverage and setting up appropriate beneficiaries, such as a trust or an adult custodian under the Uniform Transfers to Minor Act (UTMA). You can also buy a policy on your child.
New Home
- Situation: Moving or acquiring additional property might mean you need more life insurance.
- Considerations: Assess your new mortgage obligations and ensure your loved ones can maintain the home(s) without financial burden.
Job Change
- Situation: Switching jobs or receiving a promotion might change your life insurance requirements.
- Considerations: Employer-sponsored life insurance plans often don’t transfer. You may need a new individual policy.
- Lifestyle Changes: A higher income may lead to changes in living standards, requiring a coverage adjustment.
Learn more about reviewing your life insurance policy to ensure your beneficiaries are updated and your coverage is appropriate.
Should You Own Your Life Insurance Policy?
It’s typical for a person to own their life insurance policy and be insured by it. This arrangement keeps everything straightforward, keeping control in your hands. However, there may be cases when this setup might not be the best fit.
Scenarios when you may not want to own your policy:
- If your estate is likely to exceed the federal exclusion limit (currently $12.92 million), not owning the policy could help avoid or minimize estate taxes.
- Couples might opt for cross-ownership, where you own policies on each other to ensure financial security and ease of access to policy information.
- Business partners may own policies on each other to protect the business and beneficiaries should a death occur.
- Creating an ILIT and transferring your policy to the trust may give you more control over the proceeds and remove them from your taxable estate.
Learn the ins and outs of buying a policy on someone else and when it makes sense for someone else to own yours.
How to Transfer Ownership
Only the owner of a life insurance policy has the authority to transfer ownership.
One of the most common reasons to transfer ownership is to keep the policy out of your taxable estate.
The transfer must occur at least three years before your death to keep the policy out of your estate.
Since nobody can predict the exact date of their death, don’t procrastinate on this task if it’s an integral part of your estate planning checklist.
Process of Transferring Ownership:
- Obtain the Change-of-Ownership Form: Your insurance company or agent can provide this form.
- Fill Out the Form: You’ll need the new owner’s information, such as:
- First name, middle initial, last name
- Relationship to the insured
- Address
- Phone number
- Social Security number
- Additional Information for Trusts or Organizations: If transferring to a business or trust, more details may be required, such as the type of business (LLC, Inc., etc.) or the trustees’ names.
Although the process might seem simple, consulting a financial professional to understand potential tax implications is advisable.
If you’re considering canceling or selling your life insurance policy, there are some important caveats to be aware of.
Compare Life Insurance Quotes and Apply Today
Ensuring your policy is structured correctly protects your beneficiaries and minimizes your taxable estate. If you have any questions about the ownership of a life insurance policy, contact your Quotacy agent.
If you don’t yet have life insurance, buying has never been easier. Here’s how you can get started:
- Get Free Quotes: Instantly view free term life insurance quotes without giving away any contact information.
- Compare Options: Review policies from top-rated insurers, all in one place.
- Apply Online: The application is user-friendly and takes only a few minutes to complete.
- Personalized Assistance: Once submitted, a dedicated Quotacy agent will be assigned to you, working diligently to ensure you receive the best price possible and guiding you through every phase of the process.
Unsure how much life insurance you need? Try our life insurance calculator.
How can you find our if your mom life insurance policy had you as a beneficiary? My mom got married to her wife two years ago and when she past everything went to her. When I was younger my mom told me that I was the beneficiary of her policy. After talking to my family we all agree that she wouldn’t have left it all to her. But the second day my mother past away she went to my mom job and sign all the paperwork. Now a month later my step mom has a new girlfriend and has control of everything
Hi David, did your mom ever tell you the name of the insurance company? If so, you can call their customer service department and explain the situation. If you’re a beneficiary, they will be able to provide you with information. If you aren’t sure of the insurance company, you can run your name through websites like missingmoney.com. If you have unclaimed assets, such as life insurance death benefit proceeds, it’s likely to be listed there.
I am the POA for my mother. She doesn’t have any life insurance, and is in a skilled nursing facility.
Can I purchase a whole life insurance policy, designating me as the owner, my mother as the insured, and myself as the beneficiary to cover burial expenses?
It depends on the terms of your POA. Powers could be very restricted or very broad. In addition, your mother would need to be involved in the process, including giving her consent and signing paperwork. Depending on the type of life insurance purchased, she may also need to undergo physical examinations.
I purchased a life insurance policy on my husband when we were married. He did not want a policy so I am the owner and I paid all the premiums. We have been divorced for over 20 years. Now he is applying for Medicaid. Am I correct that this policy is not an asset that must be reported on that application as I am the owner?
Hi Lillian, you are correct. Your ex-husband does not need to include that policy as his asset since you are no longer married and you are the owner.
I have some questions about an insurance policy that my Mom took out on me (her daughter) several years ago. agoago.
Alicia, this blog post may help answer some questions: My Parents Bought Life Insurance on Me as a Baby. Is It Mine Now?
My wife took out whole life policy’s on our 6 children all under 14. Will she always be the owner or will the kids become owner when they become adults? What if my wife dies before the kids become adults?
Joseph, a few types of children’s whole life insurance policies do automatically transfer ownership to the child once they reach a certain age. Most children’s whole life policies, however, are always owned by the original policyowner (your wife, in this case) unless they decide to transfer ownership to the child. If your wife dies, some policies already state who is to become the owner if the original owner predeceases the insured. If the policy does not list a successor owner, then your wife’s Will would determine who inherits her assets, which would include the life insurance policies on your children. If she does not have a Will at the time of her death, the probate court would determine ownership of these policies.
My aunt had a life insurance policy which had my cousin and I as the beneficiaries. My cousin passed in January and the owner of policy became my mother. We thought she was now the beneficiary but after my aunt’s recent passing we realized that hadn’t been changed. So my mother is owner, my aunt was the insured, I am the beneficiary. Will I need to do a gift tax return… I don’t consider this my money… I will be giving it to my mother who is the owner.
Hi Tammy – in the eyes of tax law, your mom is gifting you the death benefit. Your mom is the person who needs to share this information with her accountant come tax season and can likely just use some of her lifetime gift exemption amount to cover it.
my mother has a life insurance policy on me with her the beneficiary. she has dementia and is with hospice. how can we change the beneficiary
Mark, are you your mother’s power of attorney agent? A properly appointed power of attorney can update beneficiaries of a life insurance policy.
I let my mom get insurance on me. She gave ownership of the policy to my sister. My sister changed the beneficiary and made herself the beneficiary. My children and Husband was the beneficiary. I do not give permission for my sister to have a life insurance policy on me. She has excluded her self from the family. She is not financially responsible for me or my family. Is there anything i can do?
Hi Linda,
Ask your sister if she will transfer ownership to you. You can own your own policy and then you will be able to change the beneficiary back to your husband.
my mother in law is the owner of a life insurance policy that she took out on her son he is the primary insured she has recently passed can he cash it in and get the cash value on the policy.
Christy, if your mother-in-law did not name a successive owner on the policy, the policy would transfer according to her will. If she doesn’t have a will, it would transfer according to the state laws in which she lived. Only the owner would have access to the cash value account. When the owner of a policy dies, the insured does not automatically get to take control over it.
My father is under hospice care and I am trying to get his life insurance policy in order. He borrowed a small amount of money on his policy more than 30 years ago and did not repay it. Now he owes more than the cash value in interest and penalties. The policy is still worth more than the amount owed. The agent is asking me to take ownership of the policy. Can I still take care of his policy under POA (attorney in fact) without transferring ownership? I am concerned that by transferring ownership from my father to me, it could potentially cause me to be responsible for that debt. The agent assures me that when the interest and penalties reach the same amount as the policy value it will automatically cancel the policy. What should I do?
Sonia,
As attorney-in-fact according to your father’s POA, there is no reason for you to take ownership of the policy as you can manage it as-is. That being said, even if you did decide to transfer ownership to yourself you wouldn’t need to pay these debts out-of-pocket. If the policy loan and accumulated interest grows to be greater than the policy value the policy will lapse, but you wouldn’t need to pay anything out of your own pocket.
My mom owns her insurance policy and I am beneficiary..if she gives me ownership of the policy will I have to pay taxes on the money if she passes away?
Lisa, in most cases the beneficiaries do not have to pay any taxes on life insurance death benefits. When you become policyowner, double-check that you—and not her estate—are the beneficiary.
Sometimes a policyowner will arrange for the death benefits to be held by the insurance company upon the death of the insured to earn interest. This interest income passed onto the beneficiary would be taxed. Most policies, however, are set up for the death benefit to be paid out immediately when the claim is sent in. This is then tax-free. If you have any questions, contact the customer service department of your mom’s insurance company.
My mother who recently passed away was the owner of a life insurance policy for her son Jack. Is Jack now the owner of the life insurance policy?
Ben, I’m sorry to hear you recently lost your mother. If she named a contingent owner then the policy would transfer to this person. Without a contingent owner, the policy would transfer according to her will. If she doesn’t have a will, it would transfer according to the state laws in which she lived.
Thank you for your quick response. She did not name a contingent owner. She made no mention of this in her will. She resided in Texas as does the insured.
If my mother who is the current owner an universal life insurance policy that has cash value amount of $25,000 transfers ownership to me (her son and also one of two beneficiaries) what are my tax implications?
Ben,
In this case the life insurance is considered an asset and most likely has a transfer value of $25k. There is something called ITR (interpolated terminal reserve) which is commonly used to value life insurance policies for gift tax purposes. If you want to be exact on the value of the gift, you can reach out to the insurance company and ask them to give you the ITR for the policy on your mother. This is normally done for large policies with hundreds of thousands of value. The ITR is always at least the same or higher than the cash value of a policy.
If you choose to consider the value of the gift to be $25k then your mother needs to use her annual gift exemption of $15k and then $10k of her lifetime gift exemption. She does this with a gift tax return which is due on April 15th of the year following the gift. Doing this will make sure that she doesn’t pay gift tax on the transfer of the policy over to you.
There is something else called the “Exceptions to the Transfer for Value Rule” which can sometimes make moving ownership of a life insurance policy precarious, meaning that it spoils the policy and makes the insurance proceeds taxable. But, you are fine in this case. One of the exceptions is where the cost basis of the policy carriers over from the transferor to the receiver. Most common scenario for this is when a policy is gifted from a parent to an adult child, which is the case here. So you should be fine.
Do make sure to file a gift tax return for the transfer of the policy though. They are not difficult to file and will protect your mother if she ever gets audited.
can an x wife get my brothers life insurance policy if my mom is the beneficiary on the policy? the x wife is contesting it.
Kriss, there are a few factors that would come into play here. If your brother and his ex-wife lived in a community-property state then she may be entitled to half of the proceeds. Also, divorce settlements may also have affected what happens to the life insurance policy.
Hello
Can a child’s life policy (owned by grandma) be placed in a trust, in order to avoid transfer of ownership to said child, upon his 18th (or in some cases 21st or 25th) birthday?
Louise,
Grandma is the owner of the policy and has all the control. If she does not want to transfer ownership to the child when he turns age of majority she is not required to. But to answer your question directly, yes, a trust can be created and then the trust can be named the owner of the policy. In the trust grandma can leave instructions for the policy.
If dad owns and is primary beneficiary on his three handicapped sons’ whole life policies and dad dies, does the face value and/or cash value of the policies become part of dad’s estate? Dad’s sons are young and on Medicaid. Also, can dad deposit money to the cash value of these policies?
Sheron,
We would advise dad to name a contingent owner. Upon his death, the policy would transfer to this person. Without a contingent owner, the policy would transfer according to his will. If he doesn’t have a will, it would transfer according to state laws.
With a whole life insurance policy, he likely would not be able to pay additional premium payments to increase the cash value. Whole life insurance policies aren’t typically setup for this. Let us know if you have any more questions.
My sister purchase a life insurance policy for me my name is on the policy, and my son is the Beneficiary, she now wants ownership over the policy so she can control the money for my son.
Hi Yvette, you said your sister purchased the policy for you. This means she is likely already the policyowner. You’re named on the policy probably as the Insured. Unless you meant she’s simply paying for the policy’s premiums on your behalf?
I own a life policy on my partner in life. He left me about five years ago in debt. I have been struggling ever since to pay his business and personal debts.
He has received medical advice that he will die within the next twelve months. Is it posdible for him to claim on the policy?
Pam, if you own the life insurance policy you have control over it. Your partner cannot make a claim even as the insured.
My husband was required to maintain a life insurance policy in a divorce decree from his ex wife in which their daughter was the beneficiary. My husband did not keep the policy.
I am the owner of a policy that I took out on my husband in which I pay the premiums. If my husband should pass away, would his expire have a claim on the policy in which I own and pay for?
Tricia, your husband’s ex-wife will have no claim on a policy you own.
my father purchased a flexible premium adjustable life policy for me in 1972 (i was 14 years old). he took a loan out on the policy. He died in 1984 with an outstanding loan still on the policy. In 2012 i was notified that the policy was about to lapse so i paid the loan interest and premium to avoid the tax penalty. I have now received a 1099 from them letting me know that i need to pay tax on $11K+ from the distribution because i let the policy lapse. How can i be held responsible to pay for a distribution on a loan i never took?
Cindi,
I assume your father at some point transferred ownership of the policy to you since you received the 1099. When policy ownership is transferred by way of a gift, the new owner assumes the same basis position the previous owner (your father) had. The cash basis is essentially the total premiums paid and determines how much money you can take out of a policy without owing taxes. I recommend you call the insurance company the policy is through and ask for a breakdown of your basis in the policy as well as what the basis was when your father transferred it to you. They should be able to explain to you why you are now responsible for the taxes.
My father wants to transfer ownership of his life insurance policy over to me.
Will having ownership of his Life insurance policy affect me in any way as far as taxes is concerned?
Hi Alta,
This is a great question. There are a few steps to take to lessen potential negative tax effects. The first is to have your father gift you the policy, versus you purchasing it from him (to avoid an income tax). The second is to make sure that in addition to being the policyowner, you are also the beneficiary (to avoid a gift tax).
You will also want to contact the insurance company the policy is written through and ask what the value of the policy is. If the value is less than the annual gift exclusion amount ($15,000) then you shouldn’t have any gift tax complications. If the policy value is more than $15,000 then your father will need to claim the additional amounts on his tax returns in order to use some of his lifetime gift exemption (individuals have a lifetime exemption amount of $5.6 million).
What does it mean when there are to people listed as ownership?
The policy is on my mother which purchased many years ago. My older sister is also listed as ownership. What does this mean and what are her responsibilities as being second ownership?
Hi Deborah,
If there are two owners listed on a life insurance policy, both owners have equal responsibilities. If either owner wants to make changes to the policy, both owners must approve the change.
My mom recently found an insurance policy that my dad had on me his son. He has since passed away, am I entitled to becoming the owner of the policy. Both my parents information is on the policy. But I’m not sure if he made my mom the contingent. What are the chances of me collecting the cash value of the policy
Chris, have you or your mom called the insurance company to check if this policy still active?
If your dad purchased the policy on you when you were a young child, there may be a provision that gives you ownership when you turn 18 or 21. Your dad wouldn’t have been required to accept this provision, however, so you need to call the insurance company and ask these questions. He may have named a successive owner on the policy. If he did not, the policy would transfer according to his will. If he doesn’t have a will, it would transfer according to the state laws in which he lived. Only the owner would have access to the cash value account.
My father has been pestering me for months to give him my social security number, stating he stppped paying on a life insurance policy (presumably on my life, which was purchased when I was a child, approximately 30 years ago), and he’s going to “lose money” if I don’t give him my SSN. I’ve asked him to send me whatever forms need to be completed, but he insists that I just need to give him the number. I don’t trust him. I don’t understand why he wouldn’t have access to cash value on a policy if he was the policy owner. Is it possible that I am the policy owner, and he’s trying to get money that belongs to me?
Tara,
Sometimes life insurance companies ask for the social security number of a beneficiary, but in this case it doesn’t sound like he is making you a beneficiary of a policy on him. He has indicated that it is a policy on you. I have no idea what ‘lose money’ could mean in this scenario or why he would be asking for your SS#. My suggestion is to not give it to him unless he shares a copy of the policy he is referencing and the paperwork he is trying to fill out. Transparency is so important in relationships and it doesn’t sound as though this is a transparent ask. My advice is to sit tight and wait for more information until you feel comfortable sharing (or not sharing).
My father owned a life insurance policy on my mother (divorced), 3 weeks before he died (heavily medicated and on hospice care) there was a change to the ownership and beneficiary of my brother and I, to our half sister Lisa who is no relation to our mother. The insurance company will not provide us with any other information. Is there anyway to contest this or even cancel that policy.
Hi Brittney,
I’m sorry to hear about the loss of your father. This change of ownership was obviously done while he was deeply suffering and vulnerable. Unfortunately the insurance company has no way of knowing this or validating it. The only way I know of changing the ownership of the policy back is to take your half-sister to court. A judge will be able to hear the facts of the situation and make a decision whether or not the change was made in bad faith.
My mother purchased a small whole life policy for herself many years ago. She has Altzheimers and is in care facility. We are signing her for Medicaid to pay her facility costs. She can only have $2000 in assets to qualify and this policy has cash value.
We want mortuary to get money when she passes for final expenses and family to get any left over. Who do we make owner/beneficiary?
If we make mortuary both, any remaining goes back to Medicare?
Mary, you can list multiple beneficiaries on a policy. So, you can name the mortuary a beneficiary for the specific amount you’ll owe and then list other beneficiaries for the remaining death benefit proceeds. Regarding the cash value, it will be counted as a “spend down” asset and depending upon the state you live in, the state could go after the beneficiaries for reimbursement following her death. More information can be found at the American Council on Aging website here: How to Spend Down Income and / or Assets to Become Medicaid Eligible
I’m the owner of life insurance on my son. I’m surrendering the policy. Does he sign as irrevocable beneficiary?
Hi Carolyn,
As owner of the policy, you have control over the policy. Irrevocable beneficiaries do have some power, however. They typically have to sign off on changes. Contact your agent or the insurance company of your policy to ask what needs to be done.
My mother signed over the ownership to my daughter last year, and my mother have Alzheimer’s.. now my sister and trying to transfer the ownership to her name, even if she have a power of attorney…can she sign my mother name and have it transferred?
Stacey,
Your daughter is the legal owner of your mother’s life insurance policy. Only she has control over it. Even if your sister is your mother’s POA, she cannot change ownership because the policy is no longer an asset of your mother’s but an asset of your daughter’s now.
Can I as power of attorney of my uncle change the ownership of his life insurance policy when he does not own the policy but he is the insured? We recently changed the ownership to his daughter but regret doing this and would like to change it back to him. Can j do this as his power of attorney or would i have to be her power of attorney to accomplish this??
Angela, the policyowner is the one with the control. Since ownership was transferred to the daughter, she is now responsible for what happens to the policy. It doesn’t matter if your uncle is the insured.
She would not need to name you power of attorney in order for a transfer back to her father to occur. As owner of the policy, she has the power to transfer ownership back to her father.