Appointing A Successor Owner On Life Insurance Policies

Life insurance policies typically involve three parties: the owner, the insured, and the beneficiary. The owner of a life insurance policy has a critical role, as they are responsible for paying the premiums and have the right to transfer ownership, among other things. In the case of a life insurance policy, the insured is the person whose life is covered by the policy, and the beneficiary is the person or people designated to receive the payout when the insured dies. While the owner and the insured are often the same person, this is not always the case. When the owner and the insured are different people, and the owner dies first, the policy ownership must pass to a successor owner, which can be avoided by naming a successor owner in advance.

Naming a successor owner prevents probate, which can cause costs, frozen assets and loss of time

Naming a successor trustee is important when creating a trust as part of your estate plan. A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. The trustee plays a critical role in the administration of any trust and often plays a pivotal role in its success or failure.

If the trustee is suddenly unable or unwilling to serve for any reason, the trust becomes a ship without a captain. There are an infinite number of reasons why a trustee might suddenly be unable to serve, including death, incapacity, poor health, unforeseen conflict, relocation, or simply not wanting the job anymore. Without a trustee, distributions cannot occur as planned, important investment decisions cannot be made, and investment opportunities might be missed.

Naming a successor owner on a life insurance policy prevents probate, which can cause costs, frozen assets, and the loss of time. Probate is the procedure by which ownership of a policy passes to the next owner after the previous owner's death. This process can be costly and time-consuming, and it may result in the policy being divided among multiple owners or passing to an unintended owner.

Additionally, if the insured inherits the policy after the owner's death, the proceeds may be subject to inheritance or estate taxation. In some states, once the policy becomes part of the probate estate, it also becomes accessible to the creditors of the deceased owner. Naming a successor owner ensures that the policy passes directly to the intended individual, bypassing the probate process and avoiding these potential issues.

By taking the time to name a successor owner, you can maintain control over your life insurance policy, ensure a smooth transition, and prevent unnecessary costs and delays for your beneficiaries.

The owner of a life insurance policy has control and is responsible for paying the premiums

The owner of a life insurance policy has a critical role. They have control over the policy and are responsible for paying the premiums. The owner of the policy can be the insured, their spouse, their child, or an irrevocable life insurance trust.

The insured is the person whose life is insured, and they are usually the ones who pay the premium. The owner is the person who has control of the policy during the insured’s lifetime and has the power to surrender the policy, sell the policy, gift the policy, or change the policy death benefit beneficiary. The beneficiary is the person or entity that is entitled to receive the death proceeds of the policy at the death of the insured.

The insured and the owner can be the same person, but they don't have to be. If the insured is the owner, they will have all the rights and responsibilities associated with policy ownership. If they aren't the policyholder, they may still have rights outlined in the policy. The insured must provide honest and complete information during the application process and may also have obligations related to maintaining specific health or lifestyle standards if stipulated by the policy.

If the owner of the policy is someone other than the insured, such as their spouse or child, the insured must be willing to give up control of the policy. In the case of spousal ownership, this can be advantageous if the insured is worried about creditor problems. If the owner is the child of the insured, the insured must trust that the child will make decisions in their best interest.

Another option for ownership is an irrevocable life insurance trust, which is generally created by wealthy insureds to keep the policy death proceeds out of the insured's estate for federal estate tax purposes. This type of trust is complex and expensive and is only suitable for high-net-worth individuals.

The insured is the person whose life is covered by the policy

The owner of a life insurance policy has a critical role. They have control over the policy and are responsible for paying the premiums. The owner can be the insured person, but they can also be a relative of the insured, a partnership, a corporation, or a trust. The owner has the right to name or change beneficiaries, transfer ownership, and receive the cash value and dividends (if applicable).

A life insurance policy generally involves three key parties: the owner, the insured, and the beneficiary. The beneficiary is the person or people designated to receive the payout when the insured dies. Anyone can be named as a beneficiary, and it is common for the owner and beneficiary to be the same person. However, many people buy a policy on themselves for the benefit of someone else.

The beneficiary is the person or people designated to receive the payout

The beneficiary is the person or entity the policyholder names to receive the death benefit. Once the life insurance policyholder passes, the death benefit must be distributed to the beneficiary. You can choose to name one specific person, a trust, or multiple people as contingent beneficiaries on your life insurance policy. Some common beneficiaries for life insurance plans are spouses, family members, business colleagues, charities, and a trust.

There are two main types of life insurance beneficiaries: primary and contingent. A primary beneficiary is the person or entity who is first in line to receive the death benefit payout after your passing. You can name more than one primary beneficiary. A contingent beneficiary is a backup beneficiary who will receive the death benefit payout if the primary beneficiary passes away or can’t be found. You can also name multiple contingent beneficiaries.

It is important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.). Although it is not mandatory that you name a beneficiary, it is usually the reason people buy life insurance in the first place—to provide a benefit to the people they care about. If you don’t designate a beneficiary, it may be unclear who is entitled to the funds, which can delay the benefit payment.

Most life insurance policies have a default order of payment if you do not name a beneficiary. For many individual policies, the death benefit will be paid to the owner of the policy if they are different than the insured person and still alive; otherwise, it will be paid to the owner's estate. For group insurance policies, the order typically starts with your spouse, then your children, then your parents, and then your estate.

You can usually split the benefit among multiple beneficiaries as long as the total percentage of the proceeds equals 100%. Some people name a trustworthy adult—for example, their spouse—and rely on their judgment to consider giving money to benefit other family members or loved ones.

The insured must provide honest and complete information during the application process

The application is defined as a "form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued." The application must be signed by the applicant (policy owner) and, if the policy owner is not the same as the proposed insured, the application must contain the proposed insured's signature as well.

The application will include a series of questions that provide information for underwriting the policy. These questions include name, address, age, height, weight, sex, occupation, earnings, beneficiary, insurance history, and medical history. The insured must answer these questions honestly and completely. Failure to do so may result in the insurance company rescinding the policy or denying a claim.

Additionally, it is important to note that the insured may have obligations related to maintaining specific health or lifestyle standards if stipulated by the policy. These obligations may include maintaining a certain level of health or refraining from certain activities. The insured must be honest about any relevant health or lifestyle factors during the application process to ensure that they are able to comply with the terms of the policy.

In summary, the insured must provide honest and complete information during the application process to ensure that the insurance company has an accurate understanding of their health, lifestyle, and other relevant factors. This allows the insurance company to determine the proper premium and ensure that the insured can comply with any obligations stipulated by the policy.

Frequently asked questions