Third-Party Policy Ownership

estates as beneficiary

as long as the insured's estate is not the policy beneficiary, death benefits under a third-party arrangement are not include in the insured's gross estate and are not subject to feral estate taxes

Third party ownership

A life insurance policy typically involves two parties - the owner and the insurer company. however, when in some cases, the insured and policy owner are different.

key employee life insurance

a typical business use of life insurance is known as key person (or employee) the business applies for, owns, and is the beneficiary of the policy covering a key employee. upon the insureds death, the business receives the policy's death benefit. this benefit is intended to compensate the business for the untimely loss of its key employees

stranger owned life insurance

an arrangment in which an investor or investor group convinces a consumer to purchase an insurance policy on his or her life exchange for an eventual lump-sum payment when the policy is transferred to the investor

insurable interest in 3rd party ownership

for third party ownership to be valid, there must be an insurable interest between the applicant and the purposed insured when first issued

bring-back rule

if an existing policy is transferred to a third-party owner after it is issued, it is important to do so at least three years before the insured's death if the insured dies within three years after the transfer, then the policy benefits are include in the insured's estate for tax purposes

third party ownership in the business insurance market

third party ownership of life insurance policies is far more common in the business market than in the personal market

Estate planning

when a third party arrangement is used for estate planning purposes, the owner of the life insurance policy is usually: 1. an irrevocable life insurance trust 2. an adult child of the insured