Policy Ownership
Most insurance contracts are considered to be personal contracts, which means they are an agreement between the insurer and the individual that desires to cover a particular risk. They cannot be transferred to another party without the approval of the insurance company. In most cases the insurance company must do their own independent risk assessment of the situation in order to offer coverage- because of this policyholders cannot transfer their policy.

However, life insurance is the exception to the personal contract rule. In this case, the insurer makes a promise to pay a benefit in the untimely death of the insured. The owner of the policy has no bearing on the amount of the risk that the insurer has assumed, so owners can transfer their ownership right as they desire. This transfer of ownership is known as assignment.

Designation of Beneficiary
The person that is listed to receive the benefits from a policy is known as the beneficiary. The beneficiary can be primary, contingent, revocable, or irrevocable.

Primary- this is the main beneficiary of the contract.

Contingent- this is the secondary beneficiary, if the primary beneficiary dies the contingent will receive the proceeds.

Revocable- owner of the policy reserves the right to change the beneficiary at their own will.

Irrevocable- owner of the policy has restrictions on changing beneficiaries.

Beneficiaries should be clearly defined by including their full name, current residence, share of the proceeds to be received, and date of birth or social security number. They can be listed in various forms such as: individuals, trusts, estates, minors, and charitable organizations.

Introduction to the Evaluation of Risk Exposure

Related Articles
  1. Investing

    What's a Contingent Beneficiary?

    A contingent beneficiary is a person who will receive a payout from a will, trust, life insurance policy or other annuity, based on a specific condition. For an insurance policy, the contingency ...
  2. Financial Advisor

    How to Handle Client Beneficiary Designations

    Beneficiary designations are a critical financial planning step that can be easily overlooked. Here's how to ensure they are properly done.
  3. Retirement

    Breaking Down IRA Beneficiaries: Part 1

    It's important to give serious consideration to your IRA beneficiary designations.
  4. Insurance

    Should My Child Be My Life Insurance Beneficiary?

    Don't make the mistake of naming your minor child as your life insurance beneficiary.
  5. Retirement

    Mistakes in Designating a Retirement Beneficiary

    Make sure your beneficiary designations not only reflect your intentions but also meet the requirements to be effective.
  6. Retirement

    Why You Need to Update Retirement Account Beneficiaries

    The designation of beneficiaries in retirement accounts takes precedence over a will. Don't forget to keep them updated.
  7. Financial Advisor

    Why Your Will Should Name Designated Beneficiaries

    Find out how to make the tough decisions when it comes to choosing who will receive your assets and how they will be paid out.
  8. Retirement

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  9. Insurance

    How to Avoid Taxation on Life Insurance Proceeds

    Decrease the value of your taxable estate and prevent the tax man from getting you one last time.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center