What Happens When a Life Insurance Policy Owner Passes Away?

When people think about life insurance, they typically only think about the death of the insured, as the policy revolves around them. However, there are three individuals whose lives are key to a life insurance policy: policy owner, insured, and beneficiary.

• The policy owner is the person who applied for the policy and has all rights of ownership, including choosing the policy’s beneficiaries, executing any policy riders, and (if the policy is permanent) taking loans from the policy’s cash value. The policy owner is generally responsible for paying the policy’s premiums.

• The insured is the person whose life is insured by the policy. Often, the policy owner and insured are the same person, but this is not always the case. A parent may own a life insurance policy covering their child, and spouses may own life insurance policies covering each other. The insured’s death is the catalyst for the payout of the policy’s death benefit.

• The beneficiary is the person who will receive the policy’s death benefit if the insured passes away while the policy is in force. The policy owner may be the policy’s beneficiary, provided the policy owner is not also the insured. A policy may have multiple beneficiaries who split the policy’s proceeds or contingent beneficiaries, who may access the policy’s death benefit if the primary beneficiaries are already deceased at the time of the insured’s death.

It is possible that the policy owner could pass away while the policy is in force, in which case the insurance company would need to be notified. It won’t cause any confusion if the policy owner is the same as the insured on the policy, but ownership of the policy might become tricky if the policy’s insured survives the original policy owner.

If the owner and insured are the same person:

If the policy owner and the insured are the same person, and the policy owner (insured) passes away, there is no need to pass ownership of the policy to a new entity. The life insurance contract is completed with the death of the insured. In this case, the beneficiary or beneficiaries of the policy need to file a claim with the insurance company to receive the policy’s death benefit.

At Navy Mutual, claims can be initiated online or by calling 800-628-6011.

If the owner and insured are different people:

If the policy owner is separate from the insured and the policy owner passes away, nothing inherently happens to the policy. However, the policy needs a new owner.

There are two options for how ownership of the policy will pass, depending on the actions of the original policy owner before their death.

1. If the original policy owner named a successor owner, the named successor becomes the new policy owner and all rights and responsibilities associated with owning a life insurance policy transfer to them.
2. If the original policy owner did not name a successor owner, the policy owner’s estate becomes the owner of the policy until the probate process determines the new owner of the policy. This may allow the policy to pass to an individual whom the original policy owner would not have chosen. Probate can also be a lengthy and costly process, depending on the size and complexity of the policy owner’s estate.

At Navy Mutual, we ask that individuals who own life insurance policies for which they are not also the insured complete a “Successor Owner Designation” form which allows them to designate an individual to become the policy’s owner upon their passing (if the policy is still active at that time). Current owners have options when it comes to selecting successor owners. They can name the insured to become the owner of the policy, a natural person other than the insured (another individual who has a relationship with the insured), a trust, or a company. Notarization of this form is required.