Minnesota Life Insurance License Practice Exam

All of the following are examples of third party ownership EXCEPT?

1. Key person

2. Contact assignment

3. Primary beneficiary

4. Invariable policies

The correct answer is: Primary beneficiary

Third-party ownership in life insurance refers to situations where someone other than the insured individual is the owner of the policy. This concept is essential because it affects who has control over the policy and who receives the benefits upon the insured's death. A primary beneficiary is the individual designated to receive the policy proceeds directly when the insured passes away. However, the key distinction lies in the ownership of the policy. In this case, the insured person and the policy owner are usually the same, meaning the insured is directly responsible for the policy. Since the primary beneficiary does not own the policy but simply benefits from it, this scenario does not fit the definition of third-party ownership. On the other hand, examples like key person insurance, where a business owns a policy on a key employee, and contact assignment, which involves assigning benefits or rights of a policy to another party, are clear instances of third-party ownership. Invariable policies, while somewhat ambiguous in terminology, imply a structure where ownership could involve other parties, further supporting the notion of third-party ownership. Understanding the distinction among these options helps clarify the specific roles of ownership and beneficiary designations in life insurance contracts.