Who are the Parties to a Life Insurance Contract?
So who are the parties to a life insurance contract? There are three individuals who are parties to this contract; they are the policyholder or owner, the insured, and the beneficiary. Below you will find a brief overview for each party.
Policyholder or Owner - The definition of policyholder according to www.businessdictionary.com reads: “entity that owns an insurance policy and has the right to exercise all privileges under the contract of insurance, except where restricted by the rights of an assignee.” Now what does all this mean? Very simply, the policyholder or owner is the one who has the right to make any and all changes to the life insurance policy.
Now I bet you are wondering: What exactly do I mean by any and all changes to the policy? Here is a list of changes that could be made.
· The right to transfer ownership rights
· The right to change certain policy provisions
· The right to surrender or cancel the policy
· The right to pledge the policy for a loan or to borrow against its cash value
· The right to name and to change beneficiary
· The right to determine how beneficiaries will receive the death proceeds
Insured - The definition of insured is the individual whose life is insured by the insurance policy. The insured may or may not be the policyholder. In the cases where the insured is not the policy holder, the insurance companies will ask what the insurable interest is prior to approving the application. Business partners and close family members do have an insurable interest in an individual. To have an insurable interest, the policyholder (if not the insured) needs to show that they would suffer a financial loss by the death of the insured. This requirement stops individuals from purchasing life insurance on anyone they so choose.
Beneficiary - This is the individual or individuals who would receive the death benefit upon the passing of the insured. Life insurance beneficiaries are typically categorized as primary and contingent. The primary beneficiary or beneficiaries are the ones who would receive the death benefit. The contingent beneficiary (or secondary beneficiary) would be the individual who would receive the death benefit if the primary beneficiary passes away prior to the insured.
About the author: Jim Marcinkewicz has been in the life insurance business for over 6 years. He is a big supporter of the American Red Cross and teaches both CPR and First-Aid classes. With two daughters in college, Jim knows the expense it takes to care for your family and enjoys helping others prepare their futures as well. You can reach Jim at 1-800-651-1953 or JMarcinkewicz@Pivot.com.