Life insurance policies issued today offer many valuable rights and privileges in addition to the company�s basic obligation to pay the face amount of the policy upon maturity. Most of these rights�such as surrender options, dividend options, policy loans, assignments, and change of beneficiaries�can be exercised during the insured�s lifetime and are referred to as prematurity rights. It is essential, therefore, that the ownership of the various rights be clearly established and known to all parties concerned.

When a person applies for insurance on his or her own life and designates himself or herself or his or her estate as beneficiary, all ownership rights in the policy are vested in that person. The same is true if an insured designates another person as beneficiary but reserves the right to revoke the designation. The interest of such a third-party beneficiary is usually regarded as a "mere expectancy," so tenuous as not to interfere with the exercise of the insured�s prematurity rights. In the rare case when a person applies for insurance on his own life and designates another person as beneficiary without reserving the right to revoke the designation (as is normal in most policies), the insured and the beneficiary are considered to be joint owners of the policy, and neither can exercise any prematurity rights without the consent of the other. Note that in none of these situations is the beneficiary considered to be the sole owner of the policy.

In today�s complex world of business and finance, there are more and more situations in which it is desirable�or even essential�that the beneficiary (in the broadest sense) be the absolute owner of the policy. For example, if the insured wants to keep the proceeds out of his or her gross estate for federal estate tax purposes, the insured must divest himself or herself of all incidents of ownership. A creditor wants all ownership rights in a policy taken out on the debtor to secure a loan. Partners need to be absolute owners of policies on the lives of fellow partners used to finance business continuation agreements. Employers must be the owners of policies on the lives of key employees.

Sole and complete ownership of a policy can be vested in a person other than the insured in one of three ways, discussed briefly below. The first is through procurement of the policy by the prospective beneficiary. The beneficiary applies for the insurance with the consent of the insured and designates himself or herself as owner of the policy, as well as beneficiary.

The second method is the transfer of ownership rights in a policy originally issued to the insured by means of an endorsement on the policy. The insured directs the company to vest all his or her rights, privileges, and options in the beneficiary, and the policy is endorsed accordingly.

The third method is identical with the second, except that it involves the use of an absolute assignment form. This is the oldest procedure and one that is still preferred by many.

The owner of a policy, whether procured on his or her own application or by transfer from the insured, can designate a person other than himself or herself to receive the proceeds of the policy and can reserve the right to revoke the designation. He or she may also transfer ownership to another person, provided the transfer takes effect at the time it is made. Likewise, it is generally agreed that an insured�in transferring ownership of the policy to another person�may nominate a successor to take ownership in the event that the original transferee should die before the insured.