What is a Policy Owner?
The policy owner is the person who buys and owns an insurance policy. That individual may be the insured, meaning they bought life insurance on themselves, but people can also take out life insurance policies on others. In those cases, the policy owner and the insured are two different people.
The policy owner vs. the insured
To clarify these two potentially distinct roles, it helps to first understand who, exactly, is the insured.
When it comes to life insurance, the insured is the individual whose death will trigger the life insurance company to pay out the policy’s death benefit to the beneficiaries.
In many cases, the insured and the policy owner are one and the same. You might buy a life insurance policy for yourself — making you both the policy owner and the insured — and name your partner as the beneficiary to leave them with money after you’re gone, for example.
But life insurance companies don’t specify that people can only buy life insurance for themselves. They also allow others to buy a policy — making them the policy owner — on another individual, the insured.
In that case, the policy owner has all the control over the policy. The insured doesn’t have the authority to make any decisions on the policy. In fact, if they want any changes made, they will have to ask the policy owner to handle them.
Policy owner rights
The policy owner is the individual who gets control over and responsibility for the life insurance policy. That means they’re the one who needs to pay the premiums to keep the policy active, but they’re also the person who can make changes to the policy — or even terminate it.
Additionally, and perhaps most importantly, the policy owner gets to choose the beneficiary, or the person, people, or entity that will get the death benefit when the insured passes away. If the policy owner is not the insured, the policy owner can name themselves as the beneficiary. That means they will get the policy’s death benefit when the insured dies.
When policy owners aren’t the insured
Why would someone buy life insurance on someone else? Usually, it’s because that other person’s death has the potential to negatively affect their financial wellbeing.
A stay-at-home spouse might buy life insurance on their breadwinning partner, for example. Or a business co-owner might buy a policy on their business partner.
You can’t buy life insurance on just anyone, though. Insurance companies generally require the insured’s consent, plus one other thing: insurable interest.
You have an insurable interest in someone when their death could cause financial challenges for you, as is the case with the spouse or business partner. You don’t have an insurable interest in, say, a random celebrity, though. Insurance companies will only issue policies to individuals when they can show that their financial fate is tied to the person on whom they want to take out the life insurance policy.