What is third-party ownership in life insurance?

Third-party ownership in life insurance refers to a situation where someone other than the insured individual owns the life insurance policy. This means that while the insured is the person whose life is covered by the policy, the actual policyholder is another party, which may be a family member, business partner, or any other individual or entity.

This structure can have various practical applications. For example, in the case of business partnerships, one partner might own a policy on the life of another partner to ensure that there are sufficient funds available to buy out the deceased partner's share in the business. Similarly, parents might purchase policies on their children's lives for various financial planning purposes.

This ownership arrangement is beneficial in many contexts, as it allows the owner to retain control over the policy while ensuring that the insured's life is protected, and the death benefit will be paid out to the designated beneficiary, regardless of who owns the policy.