In a life insurance policy, the party who pays the premium and holds all ownership rights, such as naming the beneficiary and borrowing against the cash value, is known as the:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In a life insurance contract, the policyowner (also called the policyholder) owns the policy and exercises all ownership rights: paying premiums, designating and changing beneficiaries, assigning the policy, borrowing against the cash value, and surrendering the policy. The insured is the person whose life is covered, and the beneficiary receives the death benefit. When the policyowner and the insured are different people, the owner must have an insurable interest in the insured's life at the time the policy is issued. Annuitant is a term used only for annuity contracts.
Why the other options are wrong
- B) The insured is the person whose life is covered and on whom the policy is written, but ownership rights belong to the policyowner, who may be a different person.
- C) The beneficiary is the party entitled to receive the death proceeds when the insured dies; a beneficiary ordinarily has no ownership rights over the policy.
- D) Annuitant refers to the person whose life expectancy determines annuity payments, an annuity-only concept that does not apply to life insurance.
Memory hook
Policyowner pays and controls, insured is the life insured, beneficiary gets the money.