Who qualifies as a third-party owner of a life insurance policy?

A third-party owner of a life insurance policy is someone who holds the policy but is not the individual whose life is insured. This distinction is crucial because it highlights the separation between ownership and the insured party's identity.

For instance, a parent could purchase a life insurance policy on their child’s life, making the parent the policyowner (third-party owner) while the child is the insured. This arrangement allows the policyowner to control the policy, including premium payments and beneficiary designations, while the insured person does not have to bear any responsibility or financial risk associated with the policy ownership.

In contrast, if a policyowner is also the insured, they do not meet the criteria for being a third-party owner, as their interests in the policy are directly linked to their own life. The insurance company is not classified as an owner of the policy but rather as the entity providing the coverage. Although a beneficiary has rights related to the policy, they do not own the policy; they merely receive benefits upon the death of the insured.

Understanding this distinction is fundamental when dealing with life insurance policies and their implications for ownership rights and responsibilities.