In a life insurance policy where the policyowner and the insured are different people, which statement correctly describes their roles?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
A life insurance contract involves four parties: the applicant who applies, the policyowner who owns the contract and controls all rights (naming and changing the beneficiary, assigning the policy, taking loans, surrendering for cash value), the insured whose life is covered, and the beneficiary who receives the death proceeds. When the policyowner and insured differ, the policyowner still exercises every ownership right and the insured merely supplies the insurable life. The policy remains valid regardless of whether the two roles are held by the same person, so long as the policyowner has an insurable interest in the insured under CIC Section 10110.
Why the other options are wrong
- A) The insured does not control the contract; ownership rights such as changing the beneficiary and taking policy loans belong exclusively to the policyowner, not the insured.
- C) A beneficiary is the payee of the death benefit and has no ownership authority; only the policyowner can change coverage, assign the contract, or elect settlement terms.
- D) There is no requirement that the policyowner and insured be the same person. A parent, spouse, or business may own a policy on another's life when an insurable interest exists.
Memory hook
Owner runs the contract; insured is the life; beneficiary just receives.