There are four main parties to every life insurance contract: the life insured, the policy owner, the beneficiary and the insurance company. The policy owner is usually the person who pays the premium, and often the same person as the life insured. When the coverage is for business purposes (key man insurance, business partner), or when the policy is designed to create a multi-generational wealth transfer (Typically when the parents/grandparents purchase policies on the kids/grandkids), the owner and the life insured are two separate entities. The owners, in these cases can transfer the policy at any time (see “Absolute Assignment”), giving up ownership to the person or entity it is transferred to. If this is done corporately, there are likely tax consequences but if done through the family, the transfer can be done on a tax-free basis.
The policy owner controls the policy, and therefore is the only person who can borrow against the cash value or modify any of the policy’s working parts. All of the benefits listed throughout this book are for the benefit of the policy owner to exercise as he or she sees fit. This is important to point out for those people that may not be able to get life insurance on themselves due to health difficulties. You can always own a policy on someone else’s life (such as a family member or business partner) and still benefit from all the concepts in this book.