St Catharines is the largest city located in the Niagara Region. With such a large and growing population, there is an ongoing need for accurate and useful life insurance information. Many policyholders wonder if it is possible to transfer policy ownership or if someone can take over an existing policy. This article will take a closer look at this topic and explain why it is so important.
Ownership of a Life Insurance Policy
Life insurance policyholders control the economic benefits of their policy. Ownership can include the authority to change various provisions, the ability to cancel or surrender the policy, and the authority to transfer ownership rights.
There are several different ways an individual may own a policy for life insurance. At the same time, being the owner of your insurance policy is the most common method. It is also possible to own a policy on another individual if the policyholder has an insurable interest in the insured person – such as a spouse, parent, or child. Business partners can also create an insurable interest.
Is it Possible for Someone to Take Over an Existing Policy?
There are times when it may be wise to name another person as the policyholder for your insurance policy. The benefits of your policy may not be included with your taxable estate. However, if the policy owner dies before you do, that policy’s cash value would be includable in that person’s taxable estate.
One option for transferring policy ownership to a different individual is contingent ownership.
What is Contingent Ownership?
Assigning a contingent owner for life insurance controls how has ownership over or interest in the policy following the policyholder’s death. However, the contingent owner does not have any authority over the policy while the policy owner is still alive. And the policy’s original owner has the option to modify who the contingent owner is at any time.
Having a contingent owner for an insurance policy is an excellent benefit because it allows ownership of the policy to bypass the estate of the original owner in the event of their death. It will enable a substantial amount of protection against any negative aspects such as creditors charging the original owner’s estate. Also, any probate fees could be avoided as well when appointing a contingent insurance policy owner.
What About Joint Tenancy?
Another option is to place ownership of non-insurance assets into Joint Tenancy. That can be useful in trying to address the need for a life insurance ownership transfer. Keep in mind that a Joint Tenancy is not available in Quebec. And there are some issues with these arrangements that your beneficiaries could avoid by assigning a contingent owner.
Joint Tenancy is a form of life insurance policy ownership transfer that is often used for estate planning. It addresses specific issues like probate fees and tax avoidance to help save the beneficiary money. While it can be useful, some problems are often associated with a Joint Tenancy, such as the partial loss of ownership and control over a policy or the exposure to claims from both policy owners’ creditors.
What Happens When you Appoint a Contingency Owner?
For example, suppose a mother accumulates a large amount of money from her business and has a daughter and grandchild who is a minor. In that case, the mother might buy life insurance on her daughter’s life that requires payments equal to the amount she wants to transfer to her daughter and grandchild. The mother can name her daughter as the policy’s contingent owner and the grandchild as the beneficiary. That sets up a transfer of wealth for two generations that is both probate-free and tax-free.
By naming the daughter as a contingent owner, there is no loss of policy ownership during the mother’s lifetime. The mother continues to have full control over the policy during her lifetime and has the freedom to change the contingent owners or update the beneficiaries at any time.
After the mother passes, the daughter may then take up ownership of the policy and maintain it. The mother could have it arranged where the daughter may withdraw funds or borrow money from the policy by using it as collateral.
Choosing to appoint a contingency owner can help your family avoid the process and expenses related to probate. As the original life insurance policyholder, you can create contingencies that would prevent the inheritance of funds if a named beneficiary does not meet specific qualifications. A policyholder could, for instance, add their child as a contingent beneficiary and place a rule that they may only gain access to their inheritance after they have graduated from college.
Appointing a contingency owner or putting contingencies in place with your policy can be very useful, but the process can also be confusing. That is why you should consult with a life insurance specialist regarding these and other aspects of your policy. These experts can help you decide if transferring ownership of your policy is the best decision based on your specific circumstances.
Final Thoughts
Now that you know someone can take over an existing insurance policy, it is time to take a closer look at your estate planning. Because appointing a continency owner or a Joint Tenancy takes careful planning, it is an option that is not right for everyone and every circumstance. Therefore, it is essential to consider all your options for life insurance policy ownership before deciding which is best for you.
At Hometown Life Insurance, our agents are here to help you decide if transferring ownership of your policy is the right option. Our dedicated team of insurance agents has the knowledge and experience needed to guide you along the process of setting up your insurance policy exactly how you want it. We will answer any questions you may have about the process and provide you with more insight on the many different ownership options available to help you make the best possible decision for your beneficiary’s financial future.
For more information on taking over an existing life insurance policy, contact the experts at Hometown Life Insurance today. We look forward to helping you and answering any questions you may have about the process.
Sources:
- https://www.sunnet.sunlife.com/files/advisor/english/PDF/Contingent_ownership_of_a_life_insurance_policy.pdf
- https://www.allaboutestates.ca/life-insurance-contingent-ownership/
- https://www.investopedia.com/terms/c/contingent_beneficiary.asp#:~:text=Benefits%20of%20Naming%20Contingent%20Beneficiaries,when%20there%20is%20no%20will.
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