How Insurance Works

Can Someone Else Own My Life Insurance Policy? | Quotacy Q&A Fridays


Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance broker where you can get life insurance on your terms. I’m Jeanna and I’m Natasha Today’s question is: can someone else own my life insurance policy? It’s very common to own your own life insurance policy. But there are cases in which it makes sense for someone else to own it. Let’s go over four common scenarios of owning life insurance on someone else. Spouses buying life insurance policies on one another happens all the time. You could, of course, simply own your own policy and name your spouse as the primary beneficiary. But sometimes couples don’t see eye-to eye on financial aspects. Maybe one spouse realizes the importance of life insurance while the other just doesn’t share the same opinion or feels they don’t have time to get life insurance. The spouse who knows its value can take control, fill out the application, and just tell their spouse where to sign on the dotted line and when to be home for the medical exam. While this is perfectly legal, we do recommend couples have discussions about finances on a regular basis and hope both come to realize the importance of life insurance. Another common example of owning life insurance on someone else is when a parent owns a policy on their child. Parents will own life insurance on their children for two main reasons: having the financial flexibility to take off work to provide a proper funeral should the worst occur, and to lock in their child’s future insurability. Once the child is a legal adult, the policy ownership can be transferred from the parent to the child if desired. Another common ownership scenario is owning life insurance on business partners or employees. In a business there are often key people whom are vital to the success of the business. These individuals could be co-owners or partners, a salesperson with strong customer relationships, or the analyst who designed and knows the ins-and-outs of the computer system. The definition of a key person is essentially anyone whose death could directly affect the future of the company. In a situation like this, it makes total sense for a company to own life insurance on the key person. If this person died, the death benefit from the life insurance policy could provide a financial cushion, help offset lost business value, recruit and hire a qualified replacement, etc. A fourth example of life insurance ownership is adult children owning life insurance on their parents. This is a common way to equalize an inheritance. For example, let’s say a family owns a business but not all the children are interested in working there. Parents are likely to leave the business only to the children interested in running it but may still want to leave behind something to the other children. The death benefit from a life insurance policy can provide money to take care of final expenses and leave that inheritance. In order to not be included in the parents’ taxable estate, it’s not uncommon for parents to transfer ownership of the life insurance policy to an adult child. The child would then become responsible for the premium payments but the parents could gift the child money to pay the amounts if they choose. If you own life insurance on someone else, you need to have insurable interest and consent except for in the case of a parent owning a policy on their minor child. The parent does not need their child’s permission. And instead of insurable interest, sentimental interest is acceptable in the life insurance industry in this situation since parents do not rely on their children financially. In addition to sentimental interest, spouses definitely have insurable interest on one another. If one of them were to die, the surviving spouse would likely struggle financially. In the business world, a company often has an insurable interest in specific employees and partners. But, don’t worry, an employer needs to provide proof of insurable interest and the employee’s consent. They can’t just buy life insurance policies on anyone they want. As you’ve learned, there are certain situations in which someone else owning your life insurance policy makes sense. In most cases, the only disadvantage to this is that you’re not in control of it. There are quite a few hoops to jump through if you want to own life insurance on someone, so don’t be alarmed thinking someone else owns a policy on you without your knowledge. If you want to learn more about life insurance consent and insurable interest check out our other Q&A video titled Buying Life Insurance on Someone Else. Thanks for watching. If you have any questions about life insurance, make sure to leave us a comment. And if you have any questions regarding today’s topic, check out the blog link posted below. If you’re ready to get quotes, check out Quotacy.com. We’re here to help you find the best deal on the life insurance you want. Bye! Thanks for sticking around. We’d appreciate it if you Liked the video and hit that fancy little Subscribe button to see us every week. Bye!


Leave a Reply

Your email address will not be published. Required fields are marked *