Can You Transfer Life Insurance to Another Person?

Life insurance policies provide financial security to beneficiaries. Policy ownership, distinct from the insured individual, grants control over the policy’s terms and benefits, including the ability to transfer ownership. This transferability allows for various financial and estate planning strategies, offering flexibility in managing a policy over its lifetime.

Types of Life Insurance Policies and Transferability

The owner of a life insurance policy possesses all contractual rights, including the ability to designate beneficiaries, take out policy loans, or surrender the policy. This ownership can be transferred, depending on the type of policy and its structure. Policies like whole life, universal life, and term life insurance are generally transferable.

Whole life and universal life policies, often referred to as permanent insurance, accumulate cash value over time. This cash value, along with the death benefit, belongs to the policy owner, making these policies attractive for ownership transfer. Term life insurance, while not having cash value, can also be transferred, with the primary benefit relating to the death benefit payout.

Group life insurance policies, commonly offered through employers or associations, operate differently. The employer or organization is typically the policyholder, and individuals are certificate holders rather than direct owners. This structure generally means individual coverage under a group policy is not transferable. However, some group policies may offer a conversion privilege, allowing an individual to convert their group coverage into an individual policy upon leaving the group, which then becomes transferable.

Common Methods for Transferring Ownership

Life insurance policy ownership can be transferred through several methods. An absolute assignment, also known as a change of ownership, involves a complete and irrevocable transfer of all rights and responsibilities from the current owner to a new owner. This method cedes all control over the policy, including the ability to change beneficiaries or access cash values, to the new party. This transfer is often used when a policy is sold or gifted.

Gifting a life insurance policy involves transferring ownership without any exchange of funds, often for estate planning. When gifted, the transfer may be subject to federal gift tax rules. The IRS allows an annual gift tax exclusion, meaning gifts up to a certain amount can be made without incurring gift tax or using a portion of the lifetime gift tax exemption. The policy’s fair market value at the time of the gift determines its taxable value.

The sale of a life insurance policy, sometimes called a life settlement, occurs when an owner sells their policy to a third party for a cash sum greater than the policy’s cash surrender value but less than the full death benefit. This provides immediate liquidity for the original owner. The new owner then takes over premium payments and becomes the beneficiary, receiving the death benefit when the insured passes away. Any gain realized from the sale beyond premiums paid may be subject to income tax.

Transferring policy ownership to an Irrevocable Life Insurance Trust (ILIT) is an estate planning strategy. An ILIT is designed to own the life insurance policy, removing its value from the grantor’s taxable estate. This can help reduce potential estate taxes upon the insured’s death. The trust becomes the policy owner and beneficiary, and its terms dictate how the death benefit will be distributed to heirs, often bypassing probate and providing asset protection.

Required Information and Documents for a Transfer

Before initiating a life insurance policy transfer, gather all necessary information and documents. Precise policy details are required, including the policy number, insurance company name, and the current policy owner’s legal name and contact information.

Details for the new policy owner are also needed. This includes their full legal name, mailing address, phone number, and social security or tax identification number. The relationship between the current owner, the insured, and the proposed new owner is typically requested.

Any necessary updates or confirmations for beneficiaries must be considered. While a change of ownership transfers control, the new owner may wish to designate new beneficiaries or confirm existing ones. This often involves providing the full legal names, dates of birth, and relationship of all intended beneficiaries.

The transfer process requires specific official forms from the insurance company, such as a “Change of Ownership Form” or an “Absolute Assignment Form.” These forms are usually obtained directly from the insurance company’s website, customer service, or a licensed insurance agent. Use the most current version of the form provided by the insurer.

Once acquired, these forms must be completed accurately using the gathered details. Every field on the form, including policy identifiers, current owner information, new owner information, and signatures, must be filled out. Any discrepancies or missing information can lead to the rejection of the transfer request. Some transfers may also require additional documentation, such as a notarized signature or copies of identification, depending on the insurance company’s requirements.

Steps for Completing a Life Insurance Policy Transfer

After gathering all required information and completing the necessary forms, submit these documents to the insurance company. The most common method for submission is postal mail, often with certified mail and a return receipt requested. Some insurance companies also offer online portals for uploading scanned forms, or submission through a licensed insurance agent.

Upon receiving the transfer request, the insurance company will begin verification and processing. This involves reviewing submitted forms for completeness and accuracy, verifying signatures, and confirming the identity of all parties. Processing time can vary, but transfers are generally completed within a few business days to several weeks, depending on the request’s complexity and the insurer’s internal processes. The insurer may contact either owner if additional information is needed.

Once processed, the insurance company will issue a confirmation to the new policy owner, often as a new policy statement reflecting the change in ownership. Some insurers may also send a separate written confirmation letter. The original policy owner may also receive notification that their ownership rights have been transferred.

Both the new and former policy owners should retain copies of all submitted forms and correspondence related to the transfer. If confirmation is not received within the expected timeframe, follow up with the insurance company by contacting their customer service department, referencing the policy number and submission date.