Who should be the owner of a life insurance policy? The person insured is generally the owner with the policy established to protect the beneficiary from financial loss. However, the policy can be set up where the spouse is both the owner and beneficiary of the policy. Why would the spouse want to the owner? Mainly it’s to prevent the beneficiary being changed or the policy cancelled without the spouse’s consent.
Keep in mind the owner of a life insurance policy completely controls that policy. Here are some of the ownership rights:
Change the beneficiary(s) or the death benefit shares received by the beneficiaries
Cancel or surrender the policy for its cash value
Discontinue Premium payments
Transfer ownership of the policy
Borrowing from the policy’s cash value
Cash value withdrawals from the policy
Determine how the beneficiary will receive death proceeds
So looking into opaque crystal ball of the future, why should the spouse be owner? What could possibly go wrong?
Divorce
I’ve been working on a cocktail called “Grounds For Divorce”
Polishing a compass that I hold in my sleeve
Elbow “Grounds for Divorce” lyrics
The most obvious reason the spouse to be owner is self interest protect in case of divorce. A woman financially dependent on her husband, those with young children would be better off owning the life insurance policy to protect her interest. In a life insurance and divorce article’s comment section I recently read, there are several examples of spouses left with nothing due to beneficiary or cancelled policies, some despite a divorce ordered court agreement. Won’t happen to me? Older couples in long-term marriages aren’t immune, since gray divorce has increased significantly for those over 65. Cross ownership of life insurance policies, each owning the policy of the other spouse, is a common option to consider.
Certainly when a ex-spouse is financially dependent on The ownership of a life insurance policy by an ex-spouse is not clear cut as to its validity. It would depend on the financial interest, how much the former spouse depends on their ex financially. Certain states have laws to address this issue. In community property states: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin different rules apply, and the spouse has more secure beneficiary rights.
Medicaid Eligibility
Life insurance with cash value counts towards an elder’s assets for medicaid edibility. To avoid this the spouse or children would be better off owning the policy.
Capacity
What if the person insured as owner exhibits signs of dementia or Alzheimer’s and makes a beneficiary change and cancels a life insurance policy? If the insured has a family history of dementia or there is a large age difference, it may be advisable for the spouse to own the policy.
Estate Taxes
Federal estate tax changes in 2013 has rendered life insurance ownership as part of taxable estate a non factor for all those expect millionaires north of 5.25 million and for couples $10.5 million indexed for inflation. For state estate taxes, in several states ownership may be a consideration.
Please contact me for a free and confidential life insurance quote
Licensed Agent: Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com
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