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. Retirement

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  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

    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.
  4. 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.
  5. 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.
  6. Financial Advisor

    Avoid This Life Insurance Policy Pitfall

    Life insurance policies need to be reviewed regularly to make sure that the beneficiary you chose some time ago is still the right choice today.
  7. Financial Advisor

    Why You Need to Find the Right IRA Beneficiary

    It definitely matters who you pick as your IRA beneficiary—and how you go about it. And in some cases, your best option may be to go with a trust.
  8. Retirement

    What You Should Know About IRA Beneficiaries: Part 2

    Here's how IRAs, and the beneficiaries you name, work with wills and trusts.
  9. Retirement

    Be Smart in Naming Beneficiaries of Your 401(k)

    Listen up: Hidden in the pesky details of filling out 401(k) forms are important tax implications. And it's a legacy to people you love.
Frequently Asked Questions
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center