Can I Change Ownership of My Life Insurance Policy?
Most people don’t give much thought to life insurance policies once they have been purchased. You pay your premium and expect your family to be covered should you pass away. There are ways that you might offer additional protection for your loved ones, however. Below, we discuss life insurance ownership and how you might transfer ownership to another person or entity.
Rights of the Policy Owner
Typically, individuals own their life insurance policies. That means that they pay the premiums, they are named as the insured in the policy, and they control all ownership rights. A life insurance policyholder has the right to control the economic benefits of the policy. Policy ownership rights include:
- Right to transfer ownership
- Right to alter certain policy provisions
- Right to cancel or surrender the policy
- Right to name or change the policy beneficiary
- Right to dictate how beneficiaries will obtain the payout proceeds
- Right to pledge the policy for a loan or borrow against the cash value of the policy
Advantages to Having Another Owner
There are reasons why having another owner of your life insurance policy is beneficial. Life insurance proceeds from your policy might be included in your taxable estate if you own the policy. If someone else owns the policy, then the proceeds will not be included in your estate. That allows your beneficiaries to take the policy proceeds without paying taxes as part of your estate. If that person predeceases you, however, then the cash value of the policy would be included in their taxable estate.
If you are transferring ownership, it’s important to pick the best person to be the new owner. If you pick your spouse, for example, then half of the life insurance proceeds may wind up as part of your taxable estate due to community property rules. You might need to jump through special hoops in order to completely separate the policy outside of the marital estate. To avoid potential complications, it might be better to pick someone else, such as an adult child or, as discussed below, a trust.
Process of Transferring Ownership
There are two principal ways to transfer ownership of a life insurance policy: individual transfer and trust. An individual transfer means that you directly transfer ownership of the money to someone else. The process should be relatively simple, involving merely filling out the relevant transfer forms with your insurer. Once you transfer ownership, you can no longer change the coverage limit or alter the beneficiaries; only the owner retains that power.
The other way to transfer a life insurance policy is through an irrevocable trust. You place the policy with the trust, a trustee takes control of the plan and makes sure premiums are paid, and the insurance proceeds are divided up in accordance with the trust agreement once you pass away.
If you have questions about life insurance policy coverage or if your insurance claim has been wrongfully denied, call a seasoned California life insurance coverage lawyer for advice and representation.
