Who own’s your insurance?…it’s pretty important…
The ownership structure of your life insurance essentially decides who gets the money, how quickly it’s paid, and whether your Will (if you have one) applies.
The owner or owners of a life insurance policy is the person, people or entity that legally controls it. The owner usually receives any claims payout and is the only one who can make changes to the policy.
Here are some of the more common ownership options (and what they mean)
1) You own your own policy. When you die, the life insurance payout goes into your estate. The money is then distributed according to your will. However, if there’s no will, the law decides who receives it. This may mean the payout may be delayed while probate is completed, legal costs may apply and dependents and family may not get immediate access to funds
2) Alternatively, another individual, like your partner, is the policy owner. Then on your death the payout goes directly to them, and it usually doesn’t need to go through your estate. But you do not control this claim payout, and the money belongs to the policy owner, not your estate. This can provide fast access to cash, but it may not suit complex situations. It can also be hard to unwind if you separate from your partner and need to change ownership.
3) Another common option is Joint ownership, where both partners as joint lives assured jointly own the policy. On death the payout will then usually go to the surviving owner. It bypasses the estate leading to faster access to funds. Your Will does not direct this money, it automatically goes to the surviving owner. This one can be tricky to unwind too as both owners need to jointly approve any changes to the policy. This can be hard if they aren’t talking anymore.
4) Finally, with Trust ownership the policy is owned - for example - by a Family Trust. The payout goes into the Trust, and the Trustees distribute funds according to the Trust deed. Here, the money is separate from your personal estate. This can be useful for Asset protection, if there are Children from previous relationships or for Business or estate planning. It is however more complex and really requires legal advice. There are usually limitations to this (is the trust a limited trust for example) and in some cases all the trustees need to sign – essentially as joint owners - which can be like herding cats.
A critical rule to remember is your Will only controls life insurance if the policy is owned by you (or your estate). If someone else owns the policy the payout goes to them even if your Will says something different. To avoid additional stress and delays at claim time, do the hard work beforehand. Insurance, ownership, and Wills should be set up and reviewed together so the money goes exactly where you want it to.