Who Plays What Role in a Term Life Insurance Policy?

• Is an ex-wife allowed to claim the death benefit on the insurance plan of her former husband even after 20 years of divorce?
• Is an insured lady allowed to change the recipient of the death benefit before her death?
• Is a son allowed to take up a loan against the life insurance policy of his old mother?

The answers to all these questions are based on the roles these people play on the insurance policy. Don’t panic, but the next statement is going to make things more complicated. Each person can play more than one role on a policy.

You must be wondering,

How to sort this confusion?

There are 3 basic roles in life and term life insurance.

• Insured: The individual whose life is being insured.
• Policyholder: The individual who is the owner of the policy.
• Beneficiary: The individual who finally receives the death benefit after the death of the insured person.

Now,

A policyholder can also be the insured person. For example, a husband may have bought the best term life insurance plan on his own life for protecting his wife and kids in the event of his demise. In this case, the husband is the insured as well as the policyholder.

In the other case, the policyholder can be a beneficiary too. For instance, that same husband may buy an insurance plan on the life of his wife, stating himself to be the beneficiary, for securing the financial welfare of his family in the event of his wife’s death. In this case, the husband is the beneficiary as well as the policyholder, and the wife is the insured.

Who will receive the Death Benefit on Life Insurance?

No matter which term life insurance you have, only the beneficiary as stated on the policy can collect the death benefits from the insurance provider. Hence, it is necessary for the owners of the policy to review their insurance decisions regularly to ensure the beneficiaries stated are the people who receive the money, especially in case they go through major life changes.

For example, a person named his spouse as the beneficiary and then went through a rough divorce. After a few years, the policyholder got married again, had kids, and lived happily ever after. Though, this happily ever after happens only when the policyholder changes the name of the beneficiary on the policy. Otherwise, can you guess who will collect the death benefit after the policy owner’s death? The ex-spouse.

There are times when people update their individual policies from time to time, but forget to update the group policies. You must take a look at all your plans regularly to ensure they are aligned with your current requirements. This will save your loved ones from a costly and difficult battle in case any disputes arise in the future.

Who has Control of the Insurance Decisions?

No matter who the beneficiary is, the policyholders have the responsibility of making payment for the insurance premium. In fact, policyholders have decision-making authority. Under a permanent life coverage plan, they can have access to the cash value, choose their beneficiaries or change them.

The insured individual has the authority to do anything only when he is the policyholder. It is possible that some confusion or misunderstandings may arise amongst the beneficiaries as the insured grows older.

A child who is the beneficiary of the life insurance of his ailing parent cannot access the cash value or make any modifications to the policy. No matter whether the parent is elderly or unable to make good decisions. The one exception wherein the son of the policyholder can make insurance decisions is when he has the durable power of attorney.

The Parting Words!

Now, that you have gone through the different roles involved in the policy in detail, the difference between them would be pretty clear. We hope you are now able to sort out who is who on a life coverage plan.