A policyowner who is not the insured dies before the insured. Which statement best describes what happens to the life insurance policy?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A life insurance policy is a valuable contract asset owned by the policyowner. If the owner dies, the policy does not lapse: it passes to the owner's estate or to a designated successor owner, and the coverage on the insured's life continues in force. The new owner steps into the ownership rights - changing the beneficiary, borrowing, assigning, or surrendering - subject to the consent rights of any irrevocable beneficiary. The insured's death, not the owner's, triggers payment of death proceeds, and a revocable beneficiary's interest vests only when the insured dies while the policy is in force.
Why the other options are wrong
- B) The policy survives the owner's death as a contract asset. It terminates only through lapse, surrender, or another contractual event, none of which is triggered automatically by the owner's death.
- C) The insured does not automatically become the owner. The contract passes through the estate or a successor-owner designation, and whoever acquires it steps into the ownership rights.
- D) The beneficiary is entitled to death proceeds only when the insured dies. The owner's death does not create a claim on the proceeds while the insured remains alive.
Memory hook
Owner's death moves the contract, not the coverage; a new owner simply steps in.