Policy Ownership

Deciding on the ownership structure of your life insurance is incredibly important and it is vital that you make sure you understand what it means before deciding on an appropriate ownership structure.

Published March 24, 2017

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Structure of a life insurance policy

Generally, there are three components to a life insurance policy:

1. The Policy Owner

They have total control over the policy

2. The Life Insured

The insured person on the policy

3. The Beneficiary

The person who will receive the benefit/proceeds

Who is the policy owner?

The importance of the policy owner cannot be understated. While the life insured and beneficiary do not hold any control over the policy, the owner has full and total control over the policy and they have the authority to:

They are also generally responsible for the payment of the premiums, however this may not always the case.

What are your ownership options?

Generally, the ownership options include:

Self Owned Policies

Self Owned policies are perhaps the easiest to administer and put into place. Essentially a self owned policy means the life insured owns the policy, giving them control and over their own policy.


Third party and Cross Ownership

Third party or cross ownership essentially means someone else, not you, will own your life insurance policy. This can be quite common in marriages when a husband may own a wife’s policy and vice versa.

While there are some risks when it comes to third party ownership, there is a number of situations in which a third party ownership structure may be suitable:

  1. If a business takes out a keyman insurance policy for an important employee in the business, the business will generally be the policy owner as well as the beneficiary.
  2. When a person is reliant on another person for income e.g. a wife or husband who may not work or have limited work duties and relies on their partner to provide an income. This may also be suitable if you are a carer for a dependent.

However one of the risk of cross ownership is when a marriage breaks down, with cross owned policies causing an issue during the separation.

Joint ownership

A combination of self and cross ownership, a jointly owned policy will still enable you to have some control over your policy; however any decisions made cannot be made without both owners being present and signing off on any changes. Also, similar issues to the ones that are faced in third party or cross ownership if separation or divorce occurs may need to be dealt with.

Superannuation Owned

Becoming increasingly popular, taking out life insurance through super allows for your premiums to be paid for by your fund. This may mean taking out cover is more cost effective.

Superannuation ownership has it’s own pro’s and cons which should be discussed with a financial adviser.

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What is flexible policy linking?

Select insurers offer a flexible linking policy structure whereby you can split the policy ownership between yourself and superannuation. This allows you to take advantage of savings by holding a combined Life , TPD and Trauma Insurance policy, but also take advantage of possible tax deductions by holding a policy within superannuation.

This may be particularly relevant to Total and Permanent Disablement (TPD Insurance) policies where an Own Occupation TPD definition is required and is not suitable to be held within superannuation.

Can you have multiple life insurance policies?

Yes generally you can, however you need to ensure that you have fully disclosed all your existing policy holdings to every subsequent insurer in any subsequent policy applications you have completed. You also need to include that you intent to retain the existing policy as well and the new one you are applying for. The underwriter will then take this into consideration when assessing you application and if you can financially justify the proposed overall level of cover across the multiple life insurance policies you intend to hold.

Please note in general you can only insure up to 75% of your salary with an income protection policy therefore in general you cannot have multiple income protection policies for the same waiting period and benefit period that take you above this figure.

Case study

Newly-weds Jeremy and Amelia decide to take out life insurance policies where Jeremy is the life insured and Amelia is the policy owner and beneficiary.

Unfortunately after five years of marriage, the two decide to separate. However, as Amelia owns the policy as well as being the beneficiary, Jeremy asks his lawyer to instruct the life insurance company to transfer the ownership to him.

While the Life Insurance Company has no problems with this request, as Amelia owns the policy, she has to authorise any changes to the policy.

As Amelia and Jeremy are no long on amicable terms, she refuses to transfer the policy ownership to him, insisting on remaining the owner and beneficiary so she can claim on the policy in the future.

Under the law, Amelia has absolutely no obligation to transfer ownership of the policy to her former husband. As long as she is willing and able to keep paying the premiums, the policy will remain in its current format.

While Jeremy is entitled to take out a new policy himself, his health status may have changed, meaning he may either be uninsurable, have exclusions put in place or his premiums may be significantly more expensive.

How do I cancel an existing life insurance policy?

To cancel an existing policy, you will generally need to do this yourself or authorise your adviser to do so on your behalf. In both cases, you will need to write and sign a cancellation letter outlining your decision to cancel. This can be sent either to your insurer or your adviser who will send onto your insurer.

Please note this letter will need to be signed by the policy owner.  While you do not need to provide a reason for cancelling a policy, if you do provide one it can help the advisers understand why you are cancelling your policy and they may be able to help you find a more affordable cover.

If you are in the process of setting up a new policy, it is very important that you do not cancel your existing policy before your new policy goes in force, in case for whatever reason it falls through. This way you still maintain cover and do not have a period between policies when you are not covered.

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