Life Insurance Policy Owner vs Beneficiary

Life insurance can be an advantageous yet confusing process. If understood and done properly, life insurance can provide financial security for you and your loved ones. In order to ensure this, you must first understand life insurance ownership in comparison to beneficiaries, policy owners, and insureds.

First, let’s consider the general difference between the owner of the policy and the beneficiary.


When it comes to life insurance, the policy owner is the individual who purchases the coverage on the insured’s life. The policy owner can be the insured person. The life insurance beneficiary, on the other hand, is the person, or multiple people, who in turn receives the life insurance death benefit when the insured dies. The insured, of course, is the person whose life is being insured in this process. The benefits consist of the money paid out by the designated life insurance company after the death of the insured.  

The owner of the policy, the beneficiary, and the insured can sometimes be three different people, or there may be some overlap when someone has more than one role. There are many different ways to maintain ownership of a life insurance policy, and there are also different types of beneficiaries. 

If you are considering owning an insurance policy, there are several ways to approach establishing your policy and what it entails. 


First, the policy owner has specific rights that come with ownership of life insurance. The following are various ownership rights that the policy owner may choose whether to act on:

  • Surrender or cancel the life insurance policy
  • Name and/or change a beneficiary or beneficiaries 
  • Transfer ownership rights to another person
  • Change certain policy provisions (i.e. paid up additions)

In addition to understanding the rights you have as the owner of a life insurance policy, you also need to determine whether you will be owning your own policy, owning a policy on someone else, or whether you own the policy at all. 

owning your own policy

One of the most common types of ownership in life insurance is owning your own policy. By being the policy owner of your own insurance, you have all of the ownership rights in addition to being the insured on the policy. You will also be the one paying the premiums. Premium payments are what you pay the life insurance company in exchange for coverage. 

Owning your own policy might be the best option for you if you’re seeking to replace your income for your family after you pass. The policy proceeds can also help pay for final expenses after your death. 

owning a policy on someone else

You don’t have to be the policy owner on a policy that pays a benefit upon your own death. Likewise, you may also own a policy on another person. You can only own life insurance on this individual if you have insurable interest. Insurable interest simply means that you share some form of financial interest with someone in your life. You have to essentially prove to your life insurance company that you would, in some way, suffer financially if that person passed away.

You must have consent from the person being insured. This type of policy may apply to family members such as spouses, parents, children, siblings, or a business partner, employees, etc. 

If you don’t want to own your own policy, you can also choose to have a trust own it. Trust-owned life insurance is often best for those who want to utilize life insurance for estate planning purposes. The trust, in this case, would maintain ownership rights as the owner and beneficiary of the life insurance policy, and if the policy is established as an irrevocable trust, the trust then removes death proceeds from your estate. When confiding in a trust, you should also have a trustee appointed, being a family member or friend, who is responsible for distributing estate assets to the trust beneficiaries. 

If you decide to transfer a policy to an irrevocable life insurance trust, death proceeds will not be included in your gross estate. You are instead giving the trust ownership of your policy while ensuring there is a source of money to dedicate to estate liquidity, which can be crucial if you owe estate taxes since they must be paid within a certain time after death. 

You may also decide on a joint life insurance policy, which can be applied when you are utilizing a trust to maintain your policy. This is quite common. A joint-life policy is a life insurance policy designated for two people, who are usually spouses, in which a policy benefit is provided when one of the two people dies. In this case, you’re covering two lives over one, and benefits can be provided to pay estate taxes. Proceeds will not be included in the gross estates, but this is only if the trust’s ownership of the policy is in place.  

Keep in mind that if you decide to commit to an irrevocable life insurance trust, the trust can’t be changed or revoked. There is also an underlying rule that if you die within three years of transferring a life insurance policy to the trust, the IRS will actually include the value of the policy in the gross estates. 


While it can be challenging to determine which type of ownership works best for you, just consider the different benefits, purposes, and potential hindrances each of these forms of policy ownership provide. They all appeal to different objectives, so depending on what you are needing covered after death will determine which best applies to you. 


Aside from the different types of ownership of a life insurance policy, there is another necessary factor to consider. You can’t have an owner without a beneficiary, which is the person designated to receive death proceeds after your passing. There might be only one appointed beneficiary for a policy, or there could be multiple beneficiaries of your life insurance policy, depending on the policy owner’s objective.

You may need a named beneficiary, and if you don’t, it is common that the estate becomes the beneficiary instead. Some policies also automatically determine a beneficiary, so if this was to occur, you wouldn’t need to appoint anyone. Regardless of what instance you’re dealing with, it’s important to understand the varying types of beneficiaries, whether you must name them or not, and how you will do so (primary vs contingent and percentages). 

primary beneficiary

The primary beneficiary of a life insurance policy is the named person that is to receive your life insurance proceeds after your death. This will most likely be someone very close to you, whether it’s a spouse, your children, or another immediate or close family member.

This beneficiary can often be considered as an irrevocable beneficiary as well, meaning this person has full rights to the funds from your policy regardless if you want to change a beneficiary on your policy contract. You may still be able to change the primary beneficiary if they are irrevocable, but this is not easily done and may not be possible at all.

Most beneficiaries are not irrevocable. Irrevocable is for very particular situations.

contingent beneficiary

A contingent beneficiary is the person you name to receive proceeds after your death in the case that the primary beneficiary dies before you. This beneficiary can still be immediate family or “next of kin”.

If you name your spouse as your primary beneficiary, for example, you may then appoint your child as the contingent beneficiary. You may also have multiple contingent beneficiaries listed on your life insurance policy.

If you decide to name any of your children as beneficiaries, you must also know that if they are minor children, you should not appoint them since minors are typically not allowed to directly receive the proceeds of a life insurance policy. If you want them to be beneficiaries, it is recommended that you do so through a trust or a guardian to manage the proceeds for the children. 

A trust, revocable or not, can be a beneficiary of a life insurance policy.

Irrevocable beneficiary of life insurance


A temporary beneficiary is essentially the opposite of an irrevocable beneficiary with the appointed person instead being revocable. If you are the policy owner, you have the right to change a beneficiary at any given time. If you have a temporary/revocable beneficiary, you may remove them at any point before your death and they will not receive the benefits guaranteed to the primary beneficiary. 


A permanent beneficiary is another term for an irrevocable beneficiary. It’s sometimes referred to as a Collateral Assignment. Maybe a debt is owed to the beneficiary.

While this was previously mentioned for primary beneficiaries, the primary beneficiary of your policy does not necessarily have to be irrevocable. It’s just that, in most cases, these beneficiaries, if any, are the ones provided as irrevocable. Any permanent/irrevocable beneficiary is one that you may not cancel or change without the beneficiary’s consent to do so. Once you name this beneficiary, there can not be any form of change or use of your ownership rights without written permission from that individual. 

You may also decide to name multiple beneficiaries. There are no restrictions on the number of beneficiaries you can appoint, but some policies or companies may limit you to a maximum number of people or entities named. Having multiple beneficiaries can be advantageous and is recommended in case your primary beneficiary passes before you or another situation affects the outcome of someone being available to receive your death benefits. You have the right to change these beneficiaries at any time before your death (except in the rare case of having irrevocable beneficiaries).  

If you do choose to have multiple beneficiaries on your life insurance policy, you will need to determine how much each of the policy’s beneficiaries will receive after you pass. You may be tempted to split the shares equally between all of your designated beneficiaries, but this is not recommended. It’s often better to provide a percentage share for each or decide on one beneficiary to receive any benefits. This is because your insurance company will be making interest and dividend adjustments to your policy benefits, meaning that the end result of your provided benefits will not equal the policy’s original value. Keep this in mind when deciding who should receive what. However, it’s perfectly fine if you are splitting the shares equally despite the alterations in your life insurance benefits.


As previously stated, the entire process of setting up a life insurance policy can be incredibly challenging and confusing. There are many resources you may utilize in addition to this guide to assist you in this development and fully understand what policy is best for you. You may want to work with a financial advisor or attorney for legal advice to determine the type of ownership and policy beneficiaries you need for your personal situation. Then, once you figure out these components, you can move on to working with an insurance agent to find the right policy for you. 


Two of the biggest components in developing a life insurance policy are establishing the policy owner and primary and contingent beneficiaries. Understanding and properly coordinating these two will ensure that you have an official plan to protect your family’s financial future after you have passed away.

Now that you understand what these concepts entail and how you should approach your life insurance situation, you are ready to make an informed decision that helps you create a successful life insurance policy.

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