Life Insured

There are four main parties to every life insurance contract: the life insured, the policy owner, the beneficiary, and the insurance company.  The life insured is the person on whom the policy is written.  Every insurance policy must have a person whose life is associated with it, to determine when a death benefit gets paid.  When this person dies, the death benefit is paid.  

It is pretty common to have the life insured and the policy owner be the same person.  However, when the life insured is a different person than the owner, the life insured does not have any rights to the policy (see “Policy Owner” for more details on those rights).  Some examples of policies where the owner and the life insured would be two separate individuals or entities are the juvenile (child) policies that are usually owned by the parents or grandparents, or the key employee insurance typically owned by the company.  The life insured can become the owner of the policy if that ownership is transferred by the current owner of the policy (see “Absolute Assignment” and “Cascading Life Insurance”).  As long as the policy is transferred down the family tree: ie grandparent to parent, parent to child, this transfer would have a tax-free rollover through an absolute assignment.  In other cases, there would very likely be some form of tax consequences.