What is policy ownership and who should own my policy?

Policy ownership is one of the most understated parts of the Life Insurance journey, but understanding who should own your policy is critical to ensuring the right amount of money goes to the right person at the right time.   

• What is a policy owner in insurance?
• Why is policy ownership important?
• What issues can policy ownership cause?  
• What are the different types of policy ownership?  
• Can a trust own a policy?
• Which policy ownership type is right for me?

What is a policy owner in insurance?  

There are typically three roles in an insurance policy: the insured, the payer and the owner. Understanding these roles is important when it comes to Life Insurance policies. Only an owner has control over the policy and its benefits, including the ability to make changes like adjusting coverage levels, changing the beneficiaries, and transferring ownership of the policy. They are also the recipient of any claim paid under the policy. 

Why is policy ownership important?

Understanding ownership when you take out a Life Insurance policy is critical to ensuring the right amount of money goes to the right person (or people) at the right time.  

If you are not the owner of the Life Insurance policy, then you have no rights to do things like change the coverage or premiums, cancel the policy or even request information about the policy. 

What issues can ownership cause?

Not considering policy ownership can lead to issues, for example during a separation or divorce. Because the owner remains in control of the policy, the person who isn’t the owner can potentially be left without the financial support they were expecting to receive. Ownership should therefore be carefully considered, both when taking out a policy and in the event of any significant life changes.   

Issues can also arise when it comes to death. Depending on who the owner of the policy is, benefits can be paid directly to individuals or beneficiaries, while in other cases they are paid to the estate of the deceased, which can lead to delays in getting payments to beneficiaries.   

These examples demonstrate that when you’re considering Life Insurance, you should think carefully about how ownership of any Life Insurance policy fits with your will and your broader estate planning.  You should seek independent advice from a lawyer on these matters.     

What are the different types of ownership?  

There are different types of ownership when it comes to Life Insurance policies, and each of these has pros and cons to think about.  

Owning a Life Insurance policy over your own life 

Owning a Life Insurance policy over your own life has advantages for you as an individual, like the ability to make changes without needing the consent of anyone else. If you end up separating or getting divorced, it means you remain in total control of the policy. It also means the proceeds of your policy will form part of your estate and will be distributed as you have chosen and documented in your will.  

Owning a Life Insurance policy over someone else’s life  

Owning a policy over someone else's life, such your partners, has advantages for some people.  As mentioned earlier, if your partner dies the benefits are typically paid straight to the policy owner rather than going to the deceased person's estate, meaning the owner does not have to wait for the Court to grant probate, or deal with legal issues. But this type of ownership can also lead to issues, such as in the event of separation or divorce.   

For example, if your partner has sole ownership of a policy over your life and you decide to separate, you have no right to change or cancel the policy without their consent. As the owner, they can decide to continue paying the policy premiums and to receive the policy's benefits in the event of your death.  

Owning a Life Insurance Policy jointly with someone else 

Joint ownership of a Life Insurance policy is when the policy is owned by 2 or more individuals. With this type of ownership, if one of the owners who is also the life insured dies, the benefits will go directly to the remaining owner(s).  If the owner that dies is not the life insured, then the ownership and control of the policy goes to the remaining owner (or owners).   

This can be a good option for couples looking to streamline their estate planning, ensuring that the surviving spouse can receive the proceeds of the policy without waiting for the estate to be settled.  

Another reason joint ownership appeals to some people is because of the shared responsibility. It means that both partners can make joint decisions about their future security and the management of their estate. 

If you’re considering joint ownership, it’s important to note that if you separate or divorce, it can be difficult to make any changes to the policy, or to have the policy transferred unless both owners agree. . Court orders may be required where contracting out agreements have not been entered into and the parties cannot agree.  

Can a trust own a policy?  

Trusts cannot own policies; however, policies can be owned by individuals acting as trustees on behalf of a trust. The owner of a Life Insurance policy may choose to transfer ownership to a trustee if it aligns with their other ownership structures, for example a business or family trust.   

One consideration to keep in mind is if a trustee is an owner of a policy, they also remain the owner even if they retire from the trust, and it can be difficult as well as time consuming to locate them in order to make changes to the policy, as well as arranging payments in the event of a claim.   

Which ownership type is right for me?  

When deciding on the right ownership type for your Life Insurance policy, it boils down to several key considerations:  

If maintaining full control over the policy is important to you, then being the sole owner of the policy over your own life may be the best choice. This allows you to make unilateral decisions about the policy, but it's also important to remember that upon death, the benefits will form part of your estate, and go through probate which will delay distribution. Having your partner as the sole owner of the policy over your life will make it faster for them to receive the proceeds.   

If shared decision making is important, and you want to ensure the policy benefits pass directly to your partner or other beneficiary without being delayed by estate proceedings, then joint ownership may be more suitable. But bear in mind that if you separate or divorce the ownership of the policy and any future decisions about it may be left up to the courts to decide if you can’t agree.  

Trustee ownership may be more suitable if it aligns with your other ownership structures (for example a business or family trust), however, this can involve more complexity such as selecting trustees to manage the policy after your death and administrative duties that the trustee needs to undertake.   

Regardless of the type of policy ownership you choose, MAS Advisers are always available to assist with any questions you may have so please get in touch.