Who owns your insurance?

Alex is our resident detail guy, which is handy when talking about the finer points of insurance. In this case, he investigates the importance of getting policy ownership right … and tweaking it to suit life changes.

 

Whenever you take out insurance there is a simple question that can have drastic consequences to the end result come claim time:

 

“Who is the policy owner?”

 

In most cases this will be you, your partner, your business partner or sometimes your parents/siblings. Assigning ownership to the right person/s is a great start but life changes can also require a re-look at this ownership structure.

 

For example, you might have taken out life insurance when you were still single and now you have a partner and kids and you’ve started a business. In this case, you will definitely need to re-look at your cover and ownership of these policies.

 

For further explanation, let’s look at a common example:

 

·      Joe and Mary are married and have two kids. Joe owns $500k of life cover to set up his kids in case he is not around anymore.

 

·      Years down the track, Joe and Mary decide that being married is not the way forward and both go their separate ways.

 

·      Joe stays single but Mary remarries a few years later to John who already has three kids.

 

·      Joe suffers a serious trauma and dies not too long after. Sorry about the tragic story but at least he had cover …

 

·      Life insurance proceeds are paid out to the policy owner.

 

 

If Joe never changed ownership, his policy is still owned by Mary, meaning the $500k is paid to Mary.

 

Mary can decide where that money might go. Joe’s kids might get it or Mary might decide to share it with her three stepchildren as well—probably not what Joe wanted.

 

Needless to say, this is a far from an ideal situation. And it wouldn’t be hard to imagine an infinite number of permutations of this scenario that could make things even worse.

 

So this all boils down to the fact that, aside from insurance being important, setting up the ownership of that insurance, and tweaking it to suit changes in life circumstances, is probably just as important.

 

This sort of detail is the stuff a good insurance adviser will talk you through. We’ll help make sure that what you intend to happen, does happen if and when it’s time to make a claim.

 

Alex is our insurance expert in the office and would happily help out with all insurance questions you would have in regards to this article or insurance questions in general.

 

Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.