By Karla Sullivan
There are three designations for people on a policy – not including the insurance company or the beneficiary.
The first being the Proposed Insured (PI) – also known as the person being insured.
The second being the applicant – who is applying for the insurance. Generally, the PI is applying for insurance himself, even if it is the spouse doing the application on the phone with an agent. The applicant may be someone other than the PI when a trust is involved and the trust is specifically requested to be the applicant.
A small percentage of the time a business is the applicant if it is a key man or a buy-sell. In those instances, a lawyer says that is how they want it set up.
The last being the owner – the person who has the rights to make decisions about the policy. They are the person who can name or change the beneficiary or make any other changes to the policy, including canceling it.
Usually, they are the person who pays for it too, but that is not always the case. A divorce decree could make the PI pay for the policy but the now ex-spouse is the owner (so they can make sure that the PI doesn’t change the beneficiary).
Again, usually the PI is the owner but sometimes a Trust or a Corporation will be the Owner (in the case of a buy-sell or key-man insurance). Sometimes, someone will make their spouse the owner of the policy, acting on the advice of either a financial planner or an accountant for tax purposes.
Also, should the owner pre-decease the PI, the PI becomes the owner.
Many question if someone can purchase a secret life insurance policy on you.
According to Life Happens, the insurance company will make sure that the person buying the insurance policy has a valid “insurable interest” with respect to the insured. So, anyone buying an insurance policy in your name will have to prove an insurable interest for investing in you, based either on marriage, blood or business relationships.
Additionally, it has become a standard practice to give a follow-up phone call to the person being insured from the insurer or the agent to verify the authenticity of the application and to validate both his or her income and the need for buying a particular insurance policy.