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Your Complete Guide to Life Insurance Policy Ownership

Choose your policy’s controller wisely. The policy owner, or policyholder, holds significant power over your life insurance. It’s crucial to pick the right person for this role.

Russell Cain

Fact Checked

Updated: 19 May 2024

Whether you’re new to life insurance or considering a change in ownership, understanding your options is key. The right choice ensures your policy’s longevity and value.

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Who’s who on your life insurance policy

Generally, there are 3 essential parties to a life insurance policy:

Responsibilities as the owner of a life insurance policy

The owner of the policy is responsible for paying the premiums to keep the life insurance policy in force and the life insured protected.

As a policy owner, you have the authority to perform a number of actions that directly impact the operations of the policy, like increasing or decreasing the amount insured or cancelling the policy altogether. It’s important to note that if the life insured is not the policy owner; they do not have to be informed of any of these changes.

As the policyholder you are responsible for:

The different types of life insurance policy ownership structures

There are several different types of life insurance ownership options. It’s important to understand the difference between each before deciding on the option that best suits your particular circumstances.

Pros and cons of a superfund owning your policy

Advantages
Disadvantages
Might be more cost effective. Your premiums are deducted from your superannuation account balance, rather than out of your bank account.
Before you can receive a benefit, you have to meet the:Policy definition, Rules of your trust deed and The condition of release as per SIS legislation.
Super funds can usually negotiate group discounts, making the premiums more affordable.
Not all superannuations allow you to apply for extra cover. Thus, your level of cover might not be enough for your specific requirements.
Generally, no medical exams are required, making it more convenient and easy to get a policy.
You might not be able to choose your beneficiaries as the decision regarding the distribution of the payout lies with the Trustee of your super fund.
Some super funds include both income protection insurance and total and permanent disability (TPD) cover, which can be cheaper.
Trauma insurance is no longer available through super funds.

Life Insurance Direct Comparison Engine (December 2023; Premium estimates for $200,000 of death cover for a 55-year-old non-smoking male and female who works as a school teacher and lives in NSW)

Should I own my life insurance policy?

Although owning your policy is the most predictable form of ownership; you pay the premiums, you’re the insured, and you choose the beneficiaries, whether you should own your life insurance policy depends on your circumstances, requirements and budget. What’s best for a single, independent individual might not be the best for a married couple with small children.

If you are unsure which ownership structure would most benefit you; then it might be beneficial first to discuss your requirements with a specialist to help you make an informed decision.

Frequently Asked Questions and Answers

If the life insurance policy owner has passed away, then what happens to the policy will depend on whether the owner is also the life insured or not.

  • What happens if the owner is not the life insured?
    Ownership becomes part of the deceased’s estate and shall be passed on accordingly.
  • What happens if the owner is the life insured?
    The beneficiary will receive the benefit payout from the policy, and the policy will stop.

Yes, generally, you can transfer ownership of a life insurance policy. There may be circumstances in which you find it necessary to change ownership to make it more relevant to your changing life stage, for example, getting married.

To transfer ownership of a life insurance policy, the policy owner must complete a memorandum of the transfer, detailing who the new owner will be. All existing policy owners must agree to the transfer and complete the memorandum forms.

You don’t generally pay taxes on the life insurance payout that you receive. However, the tax-free status of any life insurance benefits can possibly be influenced if the policy has been purchased through a superannuation fund or if the benefit is paid out to a beneficiary who qualifies as a non-dependant (for example, adult child).

Generally, power of attorney doesn’t give a person the authority to sign a beneficiary designation form. However, this may differ between insurance companies. Typically, only the policy owner(s) has the power to make changes to a life insurance policy, including changing beneficiaries.

Typically, the policy owner or beneficiary must contact the insurance company to notify them of the death of the life insured and provide details of the claim. The insurer will provide you with the claim forms that need to be completed, as well as a list of any additional information they might require.

Yes, the owner of the life insurance policy can make changes to the beneficiaries. This is why it is so important to understand the role of the policy owner before deciding who it should be.

If a nominated beneficiary of a life insurance policy dies before the life insured, the payment is generally passed on to the other nominated beneficiaries listed on the policy. These people are referred to as contingent beneficiaries and are named just in case such a situation occurs.

In Australia, most life insurance companies allow you to purchase multiple life insurance policies, so long as you disclose all relevant policy information to each insurer and you aren’t over insured. The amount of cover you purchase in totality must be justified.

If you would like purchase life insurance for the first time, or want to check that your current ownership structure is still relevant then take a few minutes to compare life insurance quotes from some of Australia’s top life insurance companies.

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Specialist

Russell is the founder and CEO of Life Insurance Direct and has been quoted in The Sydney Morning Herald, The Age, Independent Financial Adviser, Risk Adviser, Adviservoice, and Insurancenews. Russell has over 15 years’ experience in the Australian life insurance & financial services sector and is instrumental in driving the latest innovations in our insuretech platform.

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