Who Should Own a Term Life Insurance Policy?

A term life insurance policy provides death benefit protection for a period of one or more years.

The death benefit of a term life policy is paid out if the insured person dies during the duration of the policy "term". If the insured person lives beyond the term, there is no payout of the death benefit, the coverage expires.

 

Should You Own a Term Life Insurance Policy?

This is an important consideration when choosing to purchase a life insurance policy that ensures the future financial security for your loved ones should you pass away.

So, what is your goal for your life insurance plan – what do you want it to accomplish and how long will you need coverage in order to accomplish your goal?

These are questions you need to answer to determine if a term life policy is right for you.

You would be the owner of the life insurance policy if you purchase the coverage and pay the premiums. You may insure your own life, or own a policy that insures the life of someone else.

The majority of people choose to purchase a policy that insures their own life. However, there are many people who buy a life insurance policy to insure the life of their spouse, partner, child, parent or business partner.

You may own a life insurance policy that insures someone else’s life if you have an Insurable Interest in that person, meaning you either rely on the person for some form of financial support, or you should suffer some financial loss if the person you want to insure would pass away.

 

Who Owns a Term Life Insurance Policy?

  • A Homeowner
  • Someone with a Mortgage Loan
  • Someone with a Car Loan
  • Someone with a College Loan
  • Married Couples
  • People with One or More Children
  • Divorced Parents
  • Single Parents
  • Widowers
  • If You Have Someone That Relies on You for Financial Support

 

Why Purchase a Term Life Insurance Policy? 

  • On a Budget and Need the Maximum Amount of Life Insurance for Your Money
  • Need 30 Years or Less of Life Insurance Protection
  • Own a Home and Want to Protect the Mortgage
  • Married and Want to Protect Your Spouse
  • Starting a Family and Want to Protect Your Family’s Future
  • Have Children and Want to Provide for Your Child’s College Education

 

Types of Term Life Insurance Policy Owners

Although most people choose to purchase life insurance to insure their own life, there are other ownership options available. 

Being the owner of a life insurance policy gives you rights that allow you to make changes to the life insurance policy status (such as paying the required premiums) and outcome (who receives the death benefit).

It’s important to understand the impact of choosing to own a life insurance policy on someone other than yourself or allowing your spouse or partner to buy an insurance policy on your life.  

Understanding the rights of a policy owner will help make sure the right person in your household owns the life insurance plan and can help spare your loved ones any stress that may arise from mismanaged policy ownership of life insurance.

 

What is a Policy Owner?

A life insurance owner is usually a person who:

  • Is financially responsible for the payment of premiums.
  • Purchases a policy to cover themselves or their spouse/partner/fiancé/relative
  • Decides whether to maintain, renew or cancel the life insurance policy
  • Choose the beneficiaries who receive the death benefits

 

In deciding who should own the insurance policy, it’s important to distinguish between the:

  • Policy Owner – defined above
  • Insured – the person whose life is insured by the policy
  • Beneficiary – an individual and less commonly, a trust, estate or business who receives the death benefit from the policy upon the insured’s death

 

Who May Own a Life Insurance Policy? 

Life policies can be owned in a variety of ways. Most commonly, the owner and insured is the same person.

However, if you’re interested in exploring other options, the following are additional ownership options available to you:

  • Self: You may own a policy on your life, in which case you are the owner and insured
  • Spouse/Partner/Fiance/Relative: You can be the owner AND the beneficiary of a policy on your spouse, partner or fiancé.
  • Any person or legal entity who you have an insurable interest in or has an insurable interest in you: Essentially, you can purchase a policy on a person with whom you have a financial interest in his or her life.

 

Or someone who has an insurable interest in you can purchase and own a life insurance contract on your life. 

One example is a parent who takes out a policy on their children, which typically happens if the parent has co-signed a non-Federally funded student loan.

Another example is a Trust Fund holding a life insurance policy for a minor. Yet not every life insurance provider allows for more complex types of life policy ownership.

 

Why Policy Ownership Matters 

Policy ownership grants the following rights exclusively to the policy owner: 

  • Choosing the Term Duration of the Policy
  • Renewing or Canceling the Policy
  • Naming and Changing Beneficiaries
  • Transferring Ownership Rights

 

The above rights, and their impact on the beneficiary of the policy, are why policy ownership matters for life insurance. 

Choosing an appropriate owner for your policy could cause the beneficiaries more stress and potentially cost them money by making the death benefit taxable as a gift, at an already trying time while they are dealing with the emotional stress of losing you.

 

Should You Own Your Own Policy? 

Owning your policy is the most common form of ownership: you pay the premiums, you’re the insured, and you name the beneficiaries. Yet, some financial planners recommend cross-ownership between spouses whereby each spouse owns, and thereby controls, a life insurance policy on the other’s life.

The benefit of cross-ownership is that you’re ensuring your own financial security if your spouse were to die suddenly. You’ll know all the information necessary to receive the death benefit.

The disadvantage of cross-ownership is that you have no control of the policy on your own life. Who wants an ex-spouse owning a life insurance policy on their life?

If your spouse owns a policy on your life, find out whether you can be named a contingent owner. This way, you’ll have a right to own the policy if your spouse dies.

Typically, it’s the simplest and most common for couples to own individual policies on their own life. This way, you’re both covered and can make any necessary changes to your own life insurance policy.

 

Transferring Policy Ownership

If you think you’ll change your mind on who should own the life insurance policy, there’s no need to worry.

Transferring policy ownership of life insurance is easy. Simply complete the Owner Change Request Form provided by your life insurer, and send it back to the company. 

Remember that once you transfer ownership, you no longer have control over the policy, including choice of beneficiary, or ability to change ownership yourself.

Since term life insurance is crucial to financial protection for your family, choosing the right policy owner is an important decision for your household.

Additionally, life insurance policy ownership shouldn’t be met with a set it and forget it mentality. After a term life policy is purchased, it’s important for the owner of the policy to review it regularly, particularly in case of major life events, to ensure the policy’s coverage and ownership remain on track with its purpose.

 

Protecting your family with life insurance is more affordable than you might think. You can comparison shop for low cost life insurance plans from JRC Insurance in less than 2 minutes.

 

Top Pick – JRC Insurance Group

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Resources:

How Term Life Insurance Policies Work

Term Life Insurance Needs Calculator



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