Ownership of a life insurance policy seems simple enough – but it is important to consider how your
family will be affected by the ownership structure you choose, as there are several ways to set up
ownership of a policy, each with their own pros and cons.
It’s important to note that the policy-owner may not necessarily be the life-assured on the policy,
however they are responsible for:
- Ensuring premiums are paid so that cover doesn’t lapse
- Deciding where claims are paid out to
- Making decisions about the policy, including changes or cancellation.
Sole ownership of your policy
Owning your own policy is a common structure, meaning you have complete control over the policy
and can make changes however you wish. If you pass away, the claim will be paid to your estate and
will be distributed according to your will.
The negative of this type of structure is the administrative delays and costs of the claim being paid
into your estate, meaning the beneficiaries won’t receive the money straight away (which could
make it difficult to cover immediate expenses after your death). Also, if there is no will, the claim
may have to go through probate – a costly and potentially lengthy process, where the money may
not go to the person(s) intended by the policy owner.
Sole ownership of someone else’s policy
A policy can be owned by someone other than the life-assured – a typical example of this type of
scenario is a spouse owning their partners policy. The benefit of this structure is that the claim is
paid out directly to the policy-owner after the life-assured passes away.
The risk with someone else owning the policy is that if the policy-owner passes away before the lifeassured, ownership doesn’t automatically transfer to the life-assured which can make for a lengthy
(and costly!) legal process. The policy owner also has all the decision-making power over the policy,
so potentially could make decisions about the policy against the wishes of the life-assured.
Joint ownership
Multiple people can own a policy; however, it is typically a couple who will jointly own a policy. All
policy owners have to agree to any changes to a policy, and if any of the owners pass away,
ownership automatically passes over to the remaining policy-owner(s). In the event of a claim, funds
are paid only to an account nominated by all policy-owners.
The difficulty with this type of ownership is that if there is a relationship breakdown, all owners still
have to agree on any changes to the policy, which can be challenging If the relationship ends
acrimoniously. If decisions cannot be agreed on and one of the owners passes away, the surviving
owner would receive the funds, which would likely be against the wishes of the deceased owner.
Company-owned policy
Companies can also own life insurance policies, generally for a key person in the business, to keep
the business up and running if they pass away.
As the owner, the company gets to decide where the claim is paid. In the event that the life-assured
leaves the business, the company still has all the decision-making authority over the policy and it is
up to the company whether or not to cancel the cover.
Bank-owned policy
A bank owning a policy is generally as security against a mortgage, as the bank needs to ensure they
can recoup funds if the life-assured passes away.
As the owner, only the bank is able to make changes or cancel the policy.
Trusts
Trusts cannot own a life insurance policy in their own name; however, the individual trustees can
have joint ownership of a policy (so all need to agree on decisions made about the policy).
Trusts generally put together a document outlining their expectations of the trustees regarding the
policy. Insurance companies are not responsible for enforcing this document however, as they only
follow the instructions of the policy-owners, so it is up to the trust to ensure that the directives in
the document are being followed.
Policy ownership is a big decision and it pays to understand the pros and cons of each before
deciding how to structure your policy. Remember that whoever owns the policy has all the control
over the decision making, so if you are choosing someone else to own or co-own your policy, you
need to be 100% certain you can trust them to make the decisions which align with your wishes!
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