It’s not uncommon for life insurance policies to be owned by one person but insure the life of another person. This is most commonly seen when life insurance is used in business settings, where a company owns policies on its employees, or in divorce decrees where ex-spouses own policies on each other. Axa Equitable explains that, “the owner has all the rights and privileges that exist under the insurance contract unless those rights have been assigned or restricted.” Understanding the power held by the owner of a life insurance policy will help alleviate any confusion regarding your own policies.
The owner of a life insurance policy can add, remove or otherwise change the beneficiaries of the policy at any time. Changes can be made without the consent of, or notification to, the insured person. This right also includes adjusting the percentage of each beneficiary’s allocated portion of the proceeds.
Death Benefit Changes
Modifications to the policy’s death benefit can be made by the owner. The most common change is a decrease in the death benefit, which requires no consent from, or notification to, the insured person. Change of the death benefit type, for owners of universal life insurance policies, can also be made that will either include or exclude in the proceeds any accumulated cash value when the insured person dies.
Change Mailing Address
Delivery of policy correspondence, including notification/confirmation of contract changes, can be directed to any address chosen by the policy owner. The owner’s rights include the ability to change the mailing address listed in the insurance company’s records, or even to add an additional address that will receive duplicate pieces of related correspondence.
Withdraw Cash Value
Accumulated cash value in a permanent life insurance policy is accessible by the policy owner. If the policy owner decides to withdraw the policy’s cash value, this can be accomplished through a loan or formal withdrawal arrangement. Either way, the owner’s rights include access to the policy’s value without the need to notify anyone else, including the insured person.
At any time, the owner of the life insurance policy may instruct the carrier to terminate the contract. No reason needs to be provided in order for the owner’s request to be granted. Any remaining policy value, if the contract was a permanent product, will be distributed directly to the owner, leaving the insured person unaware that coverage no longer exists.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.