AD Banker Comprehensive Practice Exam

What does third-party ownership refer to?

1. A situation where the beneficiary has no insurable interest in the insured

2. A situation where the beneficiary is irrevocable

3. A situation where the policyowner is someone other than the insured

4. A situation where the applicant is someone other than the payor

The correct answer is: A situation where the policyowner is someone other than the insured

Third-party ownership refers to a scenario in which the policyowner of an insurance policy is a person or entity that does not have an insurable interest in the insured. This means that the individual or organization purchasing the policy is different from the person whose life or property is covered under that policy. In many cases, third-party ownership occurs in life insurance, where, for example, a parent may take out a policy on their child, or an employer may insure an employee. This setup allows for flexibility in insurance planning, as the policyowner may have specific reasons for wanting to control the policy, such as financial planning, estate planning, or key person insurance in a business context. The other options relate to different aspects of life insurance policies but do not encapsulate the fundamental idea of third-party ownership.