Policy owner

The policy owner holds the legal rights in a life insurance contract. The owner can name and change beneficiaries (unless a designation is irrevocable), choose dividend and premium options, take loans or withdrawals, assign the policy as collateral, transfer ownership and surrender the contract. The owner is often, but not always, the insured.

Three roles appear on every application: owner, insured and beneficiary. One person can fill two of them, or three different parties can be involved. Hypothetically, a wife might own a policy on her husband's life with herself as beneficiary; a trust might own a policy on a parent for the children; a business might own a policy on a key employee. If the owner dies before the insured, ownership passes to a named successor owner or, without one, usually to the owner's estate.

Ownership has tax and legal consequences. If you own a policy on your own life, the death benefit is generally included in your estate for federal estate tax purposes, which is why large estates sometimes use an irrevocable trust as owner. When owner, insured and beneficiary are three different people, the payout can be treated as a taxable gift from the owner, a problem known as the The Goodman triangle: an expensive ownership mistake. See policy owner vs insured: why it matters for more.