Who's who in your life insurance policy?

Understanding who’s who in your life insurance policy is pivotal to having effective coverage.

Nupur Gambhir

Nupur Gambhir

Published November 12, 2020

KEY TAKEAWAYS

  • The individual whose death would necessitate a life insurance payout should be the insured on the life insurance policy

  • The policyholder of a life insurance contract is the person who pays the policy’s premiums

  • The beneficiaries of a life insurance policy are the people that receive the life insurance money when the insured dies

  • Choosing a life insurance company that best caters to your individual needs can get you the lowest possible premiums and best coverage for your circumstances

Understanding the ins and outs of your life insurance policy is pivotal to making sure you have the right financial protection in place. The most important details? Who’s who in your life insurance policy. Alongside determining the right amount of coverage, listing the right people in your policy ensures that the people you bought a policy to protect actually get the life insurance payout.

The person who needs life insurance

If you’re financially responsible for other people and your death has negative financial implications for loved ones — it’s important for you to have life insurance coverage. You would be listed as the insured on your life insurance policy, and your death would prompt the life insurance payout.

Life insurance companies require that the person who is insured on the policy actually needs the coverage. You’ll need to provide proof that your worth in assets and income matches the death benefit amount you’re asking for — meaning your family members can’t just get a $1 million death benefit payout if it doesn’t match up with how much you’d actually be providing for them in the long run. They’ll also evaluate the insured’s health, age, family history, and hobbies to determine how much to charge for life insurance premiums.

Who is insured on the life insurance policy?

If you have kids, a spouse, parents who rely on you for care, or any other dependents, you need a life insurance policy where you are the insured. Basically: if people are going to be financially impacted by your death, you should get coverage. This is why even without dependents, business owners and students might need some life insurance.

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The person who buys life insurance

The policyholder is the person who buys the coverage — they own the life insurance policy and pay the premiums so that the coverage remains in force. Only the policyholder can make changes within the policy, such as adjusting who the beneficiaries are.

While this is usually the same person as the insured, the policyholder and insured can be different people if you take out a policy on someone else. To take out a life insurance policy on someone else, you’ll need to prove insurable interest — which means that you’ll suffer financially if they die. And you’ll want to get their permission, otherwise, it’s considered life insurance fraud.

The most important distinction between the policyholder and anyone else listed in the policy is that they pay the premiums. If the policyholder fails to do so, then the policy will lapse and there won’t be a life insurance payout.

The person who gets the life insurance payout

The person who receives financial protection from a life insurance plan is called a beneficiary. You can list multiple beneficiaries on your life insurance policy, and even list contingent beneficiaries to get the death benefit if your primary beneficiaries die and cannot accept it.

Who you should name as your beneficiary

Your policy’s beneficiary should be someone you can trust to delegate the life insurance funds appropriately. This is generally a spouse, partner, or a trusted guardian.

Listing the right person as your life insurance beneficiary ensures that they actually receive it. The life insurance death benefit can’t be paid out to certain beneficiaries, such as a minor child or a pet. Even with the best of intentions, listing them in your policy could mean that the funds are wrapped up in court proceedings for years — and that they won’t be able to utilize the life insurance proceeds when they need them most.

Similarly, listing no one as your life insurance beneficiary can pose problems. Your policy’s death benefit would then be paid out to your estate, at which time it can go through probate and be collected by any creditors you owe debts to, leaving little death benefit for your family to inherit.

Updating the policy regularly and listing valid recipients as your beneficiaries is the best way to make sure the life insurance money is paid out as you intended.

The life insurance company

Choosing your insurance provider is an important part of purchasing a policy. Each insurer approaches each candidate profile differently, so the amount of coverage you can get and how much you’ll pay will vary. For instance, some life insurance companies offer better rates to people with a history of diabetes than others.

When you’re shopping around for life insurance, there are a few key factors to consider::

  • High enough coverage amounts and term lengths to suit your needs
  • Riders for supplemental coverage, including a term conversion rider
  • Opportunity for rate reconsideration if your health improves or you quit smoking
  • Temporary coverage during the underwriting process
  • Ability to decrease coverage

Other important factors to consider are the life insurance company’s financial standing and customer reviews. We’ve done all the heavy lifting for you in our life insurance reviews.

You can also learn more about the best life insurance companies here**

Knowing the ins and outs of your policy ensures that your life insurance coverage does what it’s supposed to — pays out the death benefit to the people you love and protects their financial future.

FAQ

Who needs life insurance?

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Anyone with dependents or loved ones that would be financially impacted by their death needs life insurance. The person who needs life insurance coverage is called the insured in the policy.

Who is the owner of a life insurance policy?

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The person who buys life insurance coverage and pays the premiums to keep it active is the owner of the life insurance policy. This person is called — you guessed it — the policyowner.

Who gets the money from a life insurance policy?

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The only people who are eligible to get the life insurance money are the beneficiaries listed in the policy. Creditors and family members who aren’t the policy’s listed beneficiaries cannot collect the death benefit unless it is paid out to your estate.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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