Who Should Own Your Life Insurance Policy?
You might know how much life insurance you have. You probably know what you pay each month.
But do you know whose name the policy is actually in?
Policy ownership is one of those details that can be easy to overlook when insurance is first arranged. Yet it can become very important when a policy needs to be changed or a claim is made.
The policy owner generally controls the policy and has authority over decisions relating to it. Depending on the insurer and structure used, ownership can also affect who is involved when a claim is paid.
That is why policy ownership should be considered as part of the overall insurance plan rather than treated as an administrative detail.
What Does Owning an Insurance Policy Actually Mean?
The person or entity that owns the policy generally has control over it.
Depending on the policy, this can include making changes to cover, cancelling the policy, updating details and dealing with the insurer.
The person whose life is insured and the person who owns the policy do not always have to be the same person.
For example, a husband and wife may each have life insurance but structure ownership differently depending on what they want to happen if either of them dies.
Businesses may also use different ownership structures when insurance is intended to protect shareholders, key people or business debt.
The important point is that the ownership should have a reason behind it.
Not sure whose name your insurance is currently in? Your policy schedule is a good place to start. If it is unclear, Halo can help you identify how your existing cover has been structured.
Common Policy Ownership Arrangements
There is no one structure that suits every family or business.
Owning Your Own Policy
One of the simplest arrangements is owning the policy that covers your own life.
This gives you direct control while you are alive.
What happens when a claim is made will depend on the insurer’s policy terms, any beneficiary nomination available under that policy, and your wider estate arrangements.
A Partner Owning the Policy
In some circumstances, one partner may own the policy covering the other partner’s life.
This can be useful in particular family arrangements because the surviving owner already has control of the policy.
It is still important for both people to understand what the arrangement means, particularly if circumstances change later.
Joint Ownership
Some couples choose to jointly own insurance.
That can allow both owners to be involved in policy decisions, but it is worth understanding what would happen if one person died, the relationship ended or the policy needed to be changed.
Business Ownership
Insurance used for a business purpose can require a very different structure.
A company or other business entity may own cover where the intention is to protect the business against the death or disablement of an important person.
This can be relevant to areas such as shareholder protection and business insurance.
Trust Ownership
Some policies may be held through a trust as part of wider estate planning.
This can become more complex and should be considered alongside legal and trust advice rather than looking at the insurance policy in isolation.
A Simple Example of Why Ownership Matters
Imagine a couple with young children and a mortgage.
They arranged life insurance years ago when they bought their first home. Since then, they have had two children, updated their will and changed how some of their family assets are held.
The insurance has simply continued in the background.
The amount of cover may still be appropriate, but the ownership arrangement they selected years ago may no longer fit what they now want to happen.
That is why reviewing an insurance policy should involve more than checking the dollar amount.
For parents in particular, it is worth looking at policy ownership alongside the wider question of how life insurance can help protect your children’s future.
Policy Ownership, Beneficiaries and Your Will
These areas can overlap, but they are not interchangeable.
A will, an insurance policy, beneficiary arrangements and the legal ownership of the policy can each have different functions.
Some questions worth asking are:
- Who currently owns the policy?
- Who is intended to receive the money?
- Does the policy allow beneficiaries to be nominated?
- Does the current structure still reflect your wishes?
- Has your will changed since the insurance was arranged?
- Are children or other dependants involved?
- Is there a trust or business structure that also needs to be considered?
The answers will depend on the particular policy and your circumstances.
Halo can advise on the insurance component, but legal questions involving wills, estates and trusts should also be discussed with an appropriately qualified legal professional.
Life Changes. Your Policy Structure May Need To As Well.
A policy arranged seven or ten years ago may still be sitting there exactly as it was on day one, even though everything around it has changed.
It is worth checking the ownership structure after events such as:
- Marriage or separation
- Having children
- Buying a home
- Starting or selling a business
- Establishing or changing a trust
- Updating a will
- Taking on substantial debt
- Changes to business ownership
This does not necessarily mean anything needs to change. The purpose of the review is to make sure the structure is still deliberate.
It is also worth understanding the other features sitting inside your cover. Our guide to life insurance benefits people often don’t realise they have explains some of these in more detail.
Check How Your Insurance Is Actually Set Up
Knowing that you have life insurance is one thing.
Knowing who controls it, how it fits with your wider plans and what is intended to happen at claim time is another.
Halo Advisers can review your existing policy with you, explain how the insurance is currently structured and identify areas that may need further consideration.
Where legal or estate advice is needed, we will also make it clear where an appropriately qualified legal professional should be involved.