What defines a third-party owner in life insurance?

In the context of life insurance, a third-party owner refers to a policyowner who is distinct from the insured individual. This means that the person or entity who holds the life insurance policy has different ownership rights than the person whose life is insured under that policy. For instance, a parent may take out a life insurance policy on their child; in this case, the parent is the third-party owner, and the child is the insured.

This arrangement allows someone other than the insured to manage the policy, including making decisions regarding premiums, modifications, or benefits. It’s important in situations where financial responsibilities or benefits need to be assigned to someone who is not the insured, allowing for greater flexibility in financial planning.

The other alternatives focus on different aspects related to life insurance that do not accurately reflect the concept of a third-party owner.