Incidents of Ownership
The Dictionary of Insurance Terms and Definitions
In a life insurance policy, incidents of ownership are ownership rights or the power to dictate how a life insurance policy is administered. A life insurance policy may have one or more “owners” who share these rights.
Incidents of ownership include the following powers:
- Payment of premiums†
- Name or change the beneficiary
- Determine a nonforfeiture option
- Determine the type of payment
To avoid estate taxes, the insured must have no incidents of ownership in a given life insurance policy. (In fact, any policy you owned then transferred within three years of your death is subject to your estate tax.)
†Paying premiums may not seem like a “right” at all. However, if you pay premiums on someone else’s policy, you may be unwittingly avoiding an applicable tax (such as a gift tax, where the premium payment is treated as a gift for the real policyowner). To avoid incidents of ownership, you must not pay your premium directly to the insurance company but rather make the payment a genuine gift to the policyowner, who will dispense with it however he chooses. (see also: dictionary-Crummey power note)
