Your Complete Guide to Life Insurance Policy Ownership
Decide who will control the operations of your policy.
The person who owns your insurance policy is the policy owner, also known as the policyholder. Carefully consider who should control your life insurance policy.
If you’re taking out life insurance for the first time or already have cover but want to change ownership, it’s important to understand your options. Making the right decision can help your policy maintain long-term relevance 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:
- Ensuring the premiums are paid.
- Changing or updating the beneficiaries.
- Deciding how the beneficiaries will receive the death benefit.
- Updating the policy to include additional cover, like adding total and permanent disability (TPD) insurance.
- Transferring ownership to a different policy owner or different ownership structure.
- Submitting claims if the life insured dies.
- Cancelling the policy.
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.
A self-owned life insurance policy refers to a policy that is owned by the life insured. You are the one who has taken out the policy, you are the life insured, and you are in charge of its operations.
The advantage is that you have the authority to make any changes to the policy, like updating the beneficiaries, removing the Consumer Price Index (CPI) increases to keep your premiums more affordable, removing or adding additional features.
Cross ownership of life insurance
Cross ownership is also referred to as third party ownership and means that someone else, other than you, owns your life insurance policy. You typically find cross ownership in marriages, where the husband or wife owns the policy and in mature families, where an independent adult child owns a policy providing cover for their older parent. This ownership structure might complicate things should you face issues if a separation or divorce in future.
You can also find cross ownership life insurance in businesses, where a life insurance policy is taken out for a valuable employee, and the business is generally both the owner and the beneficiary of the policy.
Joint ownership of life insurance
A jointly owned policy is a combination of self and cross ownership. You still have some control over your policy, but you won’t be able to make any decisions without your partner, business or personal. If a decision around your policy needs to be made, both policy owners must be present and sign off on any changes. With a joint ownership structure, you could face issues if a separation or divorce occurs.
It has become popular for people to take out life insurance through their Superfund, as the fund will pay your premiums. However, there are a number of advantages and disadvantages you might want to consider before deciding on this ownership structure.
Pros and cons of a superfund owning your policy
|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:
|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.|
FAQs about life insurance ownership
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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