When it comes to life insurance, there are three distinct roles that come into play: the policyowner, the insured, and the beneficiary.  A life insurance policy covers one person, called “the insured” in insurance paperwork. The policy’s owner is the person who purchases the coverage on the insured. The beneficiary is the person who receives the benefit amount when the insured dies.  In this post we’re going to focus on the role of policyowner, and help you understand what it means to be the owner of a life insurance policy.

Who can own a life insurance policy?

Any person (an adult, not a minor) or legal entity can own life insurance on another person as long as there is insurable interest and mutual consent.

Insurable Interest: Insurable interest exists when the death of one person would negatively financially affect another person.

The most common example of insurable interest is a spousal relationship.  If one spouse died, the surviving spouse would likely have trouble continuing to maintain his/her same standard of living (paying the mortgage, raising children, etc.) on one income.

Here are some common policyowner and insured scenarios:

  • Husband owning a life insurance policy on wife (and vice versa)
  • Parent owning a life insurance policy on child
  • Business owning a life insurance policy on a key employee
  • Business co-owner owning a life insurance policy on fellow co-owner
  • You owning life insurance on yourself

Maintaining life insurance policy ownership also means you have the responsibility to occasionally review the policy to ensure it is up-to-date and still structured to be of most benefit to you and the beneficiaries.

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What does it mean to be a policyowner of life insurance?

Life insurance policy ownership means you have all the control and responsibility of the policy.  Policy ownership includes:

  • Choosing the term duration of a policy (if applicable)
  • Paying the policy premiums
  • The right to transfer ownership
  • The right to name and to change the listed beneficiaries
  • The right to determine how the beneficiaries receive the death benefit proceeds
  • The right to surrender or cancel the policy
  • The right to borrow against or withdraw from policy cash values (if applicable)

Maintaining life insurance policy ownership also means you have the responsibility to occasionally review the policy to ensure it is up-to-date and still structured to be of most benefit to you and the beneficiaries.

Here are four common life events in which it is recommended to review your life insurance policy:

  1. If you get married or divorced.
  2. If you have a child.
  3. If you purchase a new home.
  4. If you change jobs.

Marriage or Divorce

You would be surprised at how often someone with life insurance dies and ends up leaving their spouse with nothing because their ex-spouse is still listed as their primary beneficiary.  A life insurance policy is a legal contract.  If the policyowner forgets to update his policy to reflect the needed change of beneficiary, there is nothing the should-have-been-beneficiary can do about it.

New Baby

If you purchased life insurance before having children and only purchased enough to cover the mortgage, but not the costs of raising a child or college tuition, it might be time to consider purchasing more coverage.

Don’t forget to add any new children to your policy as well.  However, if you name your children as beneficiaries and die before they reach legal age the court will appoint a guardian to handle the proceeds until the child reaches 18 or 21, depending on the state.  This is a costly and inconvenient process which is why we don’t recommend listing young children as beneficiaries.  Instead, you should set up a trust to benefit the child and name the trust as the beneficiary of the policy, or name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act.


John Smith and former wife Jane have a 10-year-old child together named Lola.  When he bought his policy, John set it up so that 100% of his death benefit would go to his former wife Jane, as custodian of his minor child Lola.  John then remarried, and he and his current wife Nancy ended up having a baby named George.  John updates his policy to state 50% of his death benefit going to Jane, as custodian of Lola, and 50% of his death benefit going to Nancy, as custodian of George.

It would likely not have been a pleasant outcome if John passed away and forgot to update his policy to include his new child.

New Home

Selling the bachelor pad and buying a house for your growing family?  You may need more life insurance coverage.  Buying a vacation home in Florida for the family that you want to make sure stays in the family?  You may need to purchase more coverage so that the death benefit includes the extra mortgage payments.

New Job

It’s a nice bonus if your employer offers a group life insurance plan, but when you change jobs, your plan doesn’t follow.  It’s always a good idea to review your financial portfolio when you get a new job.  Not all employers offer life insurance so if you have a family we recommend you buying an individual life insurance policy as well so you can always be sure you’re covered.

If you get a promotion that increases your monthly income substantially, will your family’s lifestyle change?  This new salary may mean new cars, private school for the kids, or maybe a bigger home.  You may need to increase your coverage to protect your family’s new standard of living.

Should I own my life insurance policy?

It’s quite common for an individual to be both the policyowner and the insured.  Being both the policyowner and the insured keeps things pretty simple.  Your life is strictly in your hands.  There are certain situations though in which this isn’t the best route.

If you own your own policy, the proceeds become part of your federal taxable estate if your estate exceeds the exclusion amount.  The exclusion amount for 2016 is $5.45 million.  That means an individual can leave $5.45 million to heirs and pay no federal estate or gift tax.  (State estate taxes are different from nearly every state and are in addition to the federal taxes.)  This includes any property you would leave to heirs as well.  Most Americans will not have this estate tax issue, however.

There is an exception to the estate tax rule.  If you own your own policy and the beneficiary is your spouse, the policy proceeds are not included in your estate via the marital deduction law.  You can transfer an unlimited amount of property to your spouse and not get hit with an estate tax.

Cross-ownership between spouses is also common.  This means that a husband would be the owner of a policy in which the wife is the insured and vice-versa.  The benefit to this is that because you are in charge of the policy on your spouse, you know you are financially protected should the unexpected occur and you have easy access to all the information required to receive the death benefit.

How can I change the owner of my policy?

If you are the owner of your policy, you can transfer ownership.  All you need to do is fill out a simple form and send it to the life insurance company.  You can call the life insurance company directly and ask for this form.  If Quotacy is your agency, you can always call us too and we will get you the forms you need.

To fill out a change of ownership form, you will need the new owner’s following information:

  • First name, middle initial, last name
  • Their relationship to the insured
  • Address
  • Phone numbers
  • Social Security number

A trust or organization can also own a life insurance policy.  With these owners, you may need a few more pieces of information, such as what type of business it is (LLC, Inc.) or the name of the trustees, but it is typically still the same simple change of ownership form.

When transferring ownership of a policy, there are some tax issues that may occur.  If you change owners to avoid estate taxes, but die within three years of making this change, the policy proceeds may still be included in your estate.  When transferring ownership, the IRS also requires you to forfeit all legal rights to the policy.  If any incidents of ownership occur by the person who transferred the policy, it may cause the policy to lose certain tax benefits.

The action of changing the owner of your policy may be simple, but the affects might be complicated tax-wise.  Before changing ownership, we recommend consulting an attorney or calling us to discuss the potential changes you want to make.  If you have any further questions about policy ownership or are looking to change the owner of your policy, feel free to contact us.  We’re happy to help.


Photo credit to: Michał Grosicki


Related Posts:

When Should You Review Your Life Insurance Policy?

Life Insurance Basics: Key Terms to Understand

When Should Someone Else Own My Life Insurance?

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content and Social Media Manager

Natasha is a content manager and editor for Quotacy. She has worked in the life insurance industry since 2010, and making life insurance easier to understand with her writing since 2014. When not at work, you can find her throwing a tennis ball for her pit bull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.

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