Ownership and Assignments | Life Insurance Provisions

Policy ownership

Role	What they are	Key rights and benefits	Example
Owner	The person or entity who controls the policy.	Can name or change the beneficiary, take loans, surrender the policy, and assign ownership.	A parent owning a juvenile policy on their child.
Insured	The person whose life is covered by the policy.	Their death triggers the payout, but they do not receive it.	The child whose life is insured in a juvenile policy.
Beneficiary	The person or entity designated to receive the proceeds upon the insured’s death.	Receives the death benefit.	The parent named to receive the payout if the child dies.

The application identifies who will own the policy, who will be insured, and who will be the beneficiary. Often, the owner and the insured are the same person, but that isn’t always the case.

If someone other than the insured owns the policy, it’s called third party ownership. In that situation, the insured must sign the application in addition to the applicant.

Third party ownership of life insurance is common. An insurance contract is an agreement between two parties: the insurer and the insured. A third party is anyone who is neither the insurer nor the insured. Examples include:

Parents:

In juvenile insurance, a parent or legal guardian is the third party owner.

Spouses:

It’s not uncommon for one spouse to own a life insurance policy on the life of the other spouse.

Buy-sell agreements:

People with business or financial relationships often buy life insurance on one another.

The owner of the policy controls the policy and is entitled to all the rights of the contract. These rights include:

Taking policy loans against the cash value
Receiving the cash value if the policy is canceled (surrendered)
Designating the beneficiary

Another important ownership right is assignment. Assignment is the policy owner’s right to transfer all or part of the ownership in the contract to another party.

There are two types of assignment: absolute and collateral.

Absolute assignment is equivalent to a sale of the policy. It’s an irrevocable transfer of all ownership rights.

Collateral assignment is commonly used to secure loans from lending institutions. It transfers some or all ownership rights on the condition that those rights will revert back to the assignor when the loan is repaid.

The assignment provision of a policy states that the company won’t be bound by an assignment unless the company has received written notice of it. The insurer assumes no responsibility for the validity, legality, or effect of any assignment.

Lesson summary

Policy ownership involves identifying the owner, insured, and beneficiary of an insurance policy. Third party ownership is common when the policy owner is someone other than the insured. Ownership includes the right to control all aspects of the contract, including policy loans and beneficiary designation. There are 2 types of assignment: absolute and collateral.

Chapter vocabulary

Definitions

Absolute assignment: The irrevocable assignment by a policy owner of all control and ownership rights of an insurance policy.
Assignment: The transfer of a legal right of interest in an insurance contract to another person.
Beneficiary: (1) A person who may become eligible to receive, or is receiving, benefits under an insurance plan other than as an insured. (2) Any person enrolled in Medicare.
Collateral assignment: Assignment of a life insurance policy as security for a loan or debt, with the creditor to receive the proceeds or cash values to the extent of the interest assigned.
Third party: Someone who is not the insured or the insurer but owns or has rights in a life insurance policy.