When you purchase a life insurance policy, you are considered the policyowner (also known as the applicant). As the policyowner you:
- Are responsible for making the premium payments
- Have the right to make changes to the beneficiary
- Can take policy loans or withdrawals (if you have a type of permanent* life insurance policy)
Simply put, it's your policy and you alone have the right to make any policy adjustments that you like.
In many cases, the insured is also the policyowner. However, there are instances where this can differ, and why it's important to know the difference. For example, you could be the policyowner on a contract for a minor child who is the insured.
An easy way to understand this term is to know that the insured is the person whose life is being insured under the terms of the contract. It's the person on whom the premiums are based (their health, age, and other factors) at the time the application is written. When the insured dies, the death benefit is paid out to the beneficiary.
The named beneficiary
The named beneficiary is the person(s) or entity listed on the life insurance contract who receives the death benefit when the insured dies. When you're ready to start your application, you'll be asked to name primary, secondary, and tertiary beneficiaries. A primary beneficiary is first in line to receive the life insurance proceeds, the secondary is second, and tertiary is third.
For example, let's say that your spouse is the primary beneficiary on your policy and your children are secondary beneficiaries. If you and your spouse were to pass away at the same time, then the death benefit will be paid out to your children as specified in your contract. Having a tertiary beneficiary isn't always required at the time of the application, but it can be an important step that you may not want skip. Basically, it's naming a person(s) or entity that is third in line in the event the primary and secondary beneficiaries are deceased at the time the policy pays out.
Taking your time to select the right type of life insurance policy is important. However, so is understanding the often confusing terminology involved with the life insurance application process.
*Provided required premium payments are timely made.