Who Should I Name as the Policy Owner for My Life Insurance?

Alexandra Belrose 0
woman with her mother

What Should I Consider in Choosing a Beneficiary?

This will really depend on your personal situation, as well as on the laws of your state. As I am not an attorney, I can only give you some basic guidance. A beneficiary is the person who will receive the funds in your policy when you die. You can name a primary and a contingent beneficiary, as well as naming multiple primary and contingent beneficiaries.

The proceeds from a life insurance policy usually go directly to the beneficiary, thus avoiding probate. Life insurance proceeds are usually not subject to income tax. If there is still an estate tax and your estate is subject to this tax, then the life insurance proceeds may be subject to the estate tax. There are methods using a “trust,” which can assist in this situation. It is advisable to work with an estate planning attorney and have a will drawn up —and a trust, if the attorney feels that it a benefit to you. When you do meet with the estate-planning attorney, you should discuss your life insurance. If you already have drawn up a will or trust, you should call your attorney prior to applying for insurance. If you do not have either document, you can change the owner and beneficiary of your life insurance policy at any time.

If you have multiple beneficiaries, you can add one of the following definitions to further direct the distribution of the death benefit:

  • Per Capita: This means that if a beneficiary dies before the insured, the remaining beneficiaries will equally divide that share of the proceeds in addition to receiving their own shares when the insured dies either (1) by head or by individual or (2) to share equally.
  • Per Stirpes: This means that if a beneficiary dies before the insured, that beneficiary’s share of the proceed will pass upon that beneficiary’s heirs rather than going to the remaining beneficiaries when the insured dies. It means by family branches, i.e., a method of dividing benefits among living members of a class of beneficiaries and the descendants of deceased members.

It is very important to make sure that all documents are clear and concise, because you will not be around to clarify them. Make sure that there are no spelling errors and full names are used. If you have a child under the age of 18 and you name them as a beneficiary, whoever has physical guardianship will typically have financial guardianship. That may not be how you wish for it to be. Again, that’s why it is a good idea to have estate planning done with an estate planning attorney. In my opinion, only an estate-planning attorney should handle estate planning. Beware of living-trust seminars and non-attorneys peddling living trusts.

Another issue to consider is a simultaneous death, where the insured and primary beneficiary die together, such as in a car crash and it cannot be determined who died first. Some states have enacted the Uniform Simultaneous Death Act, which provides that, in such a case, the proceeds are paid as if the primary beneficiary died first. Therefore, the proceeds would be received by the contingent beneficiary. If there were no contingent beneficiary, the insured’s estate would receive the proceeds. Therefore, it’s important to consider this in your estate planning and address it.

Who Should I Name as the Policy Owner?

For the most part, the same issues that apply in choosing a beneficiary apply here as well. Typically, the insured is the owner (at least in community property states). I am not familiar as to whether or not this is the case in separate property states, since my practice has been limited to community property states. Separate property states have different estate-planning practices. You may want to research this.

When the insured is not the owner, it is generally for specific reasons, such as for estate-planning purposes. As previous discussed, you should strongly consider having at least a will drawn up. You may wish to discuss this with your attorney, if you have one. It is not always necessary to engage an attorney if you wish to research the ownership and beneficiary issues yourself and are aware of the pros and cons.


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