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What? One Insurance Policy, Four Separate Parties involved?

Posted 27 December, 2018 by Clearly
in Technical Smechnical

For most transactions, it would as as simple as having one buyer and one seller. End of story, everyone lived happily ever after.

But when it comes down to insurance, which is actually a legal contract at its core, things can get more complicated than just one “buyer”.

Most of the time that is the case, if I were say an adult purchasing a policy that I myself pay for, and I benefit from the policy should the clauses were fulfilled.

In actual fact, there can be 4 separate parties to one single insurance contract – though most of the time they are one and the same person, on occasion there can be 4 distinct individuals involved.

Since it is the holiday season, I’ll keep this light and simple for easy digestion.

 

The Fantastic 4 – and their duties

 

The Policy Holder (Owner)

The one who has the right to make any and all changes to the life insurance policy, including cancelling it. Kind of the most powerful.

The Life Assured

The individual whose life is insured by the insurance policy. It is his or her well being that the policy hinges upon. Aka known as the Insured.

The Beneficiary(ies)

The person or people who would receive the death benefit (payout) upon the passing of the Life Assured.

The Payor

Pays the premiums :'(

 

Best infographic 2018

 

An actual scenario

 

Adrian, aged 38 wants to buy an Whole Life plan for his daughter, Adriana, aged 6. He names his wife, Maria as the beneficiary to the policy for now, till Adriana is older. Adrian’s Father in Law (Tom) loves the idea and is willing to fund his grand daughter’s policy.

So here are the roles of each person:

Policy Holder (Adrian)
He has the ultimate rights to the policy, and can assign (give legal ownership) away, or change beneficiaries as he decides

Life Assured (Adriana)
This policy is covering her life, and if anything happens to her, the policy terms would kick in and the payout(s) would be disbursed

Beneficiary (Maria)
Should there be any payouts, Maria would be the one receiving the payments. Right now she is the only named beneficiary, but this could change if Adrian decides to add more beneficiaries. He could also decide the % that each person receives.

Payor (Tom)
He is the person dutifully paying the premiums as they are due. And contrary to popular belief, he does not have any actual say (legal rights) to the policy.

 

Is there a point to knowing all this?

 

There are 2 schools of thought here.

No, not really useful. Your financial professional should explain it to you as necessary.

OR

Yeah, quite handy. You have something to regal people with during the New Year’s party. 🙂

See you all in 2019!

 

You know something sick is gonna happen when these guys show up

 

www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

We are also great fun at parties, just that people tend to avoid us for some unknown reason.

  1. RayVern

    The beneficiaries cannot be Maria as this is 3rd party insurance. (Adrian policy holder, Adriana life insured) only Adrian can be the beneficiary as he is the owner. unless he die before Adriana which proceeds will go to new owner. Beneficiary can only be nominated when policy holder and life assured is the same person.

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