Life insurance policies are property. Like other assets, they can be transferred, assigned, sold, or gifted under the right circumstances. However, transferring a life insurance policy is not as simple as changing a beneficiary. Ownership transfers must follow strict insurer rules and, if done incorrectly, can create tax problems, invalidate coverage, or trigger disputes after death.
Understanding the correct way to transfer a life insurance policy can help avoid denied claims, estate complications, and unintended beneficiaries.
What Does It Mean to Transfer a Life Insurance Policy?
Transferring a life insurance policy means changing who owns the policy, not just who receives the death benefit. The policy owner controls the contract. Ownership includes the right to:
Change beneficiaries
Pay or stop paying premiums
Borrow against cash value
Surrender the policy
Transfer or sell the policy
Once ownership is transferred, the original owner generally loses all control unless the transfer is limited by contract or trust terms.
Absolute Assignment of a Life Insurance Policy
Absolute assignment is the most complete and permanent form of ownership transfer. The current owner, called the assignor, transfers all ownership rights to another person or entity, called the assignee.
After an absolute assignment:
The new owner controls all policy decisions
The original owner has no remaining rights
The transfer is typically irrevocable
The insurer recognizes only the new owner
Absolute assignments are commonly used for estate planning, divorce settlements, debt security, or gifting policies to family members or charities. Once completed, the original owner cannot reclaim the policy unless the assignee agrees.
Changing the Beneficiary Is Not a Transfer of Ownership
Changing a beneficiary does not transfer ownership of the policy. It only changes who receives the death benefit when the insured dies.
This distinction matters because:
The policy owner still controls the policy
The beneficiary has no rights during the insured’s lifetime
The owner can change beneficiaries again later
Many disputes arise because policyholders believe a beneficiary change transfers control. It does not. Ownership remains with the policyholder unless a formal ownership change is completed with the insurer.
Selling or Gifting a Life Insurance Policy
A life insurance policy can be transferred through sale or gift.
In a life settlement, the owner sells the policy to a third party for a lump sum. The buyer becomes the new owner, assumes premium payments, and collects the death benefit later. Life settlements are highly regulated and often limited to older policyholders or high value policies.
A gift transfer occurs when the owner assigns the policy to another person or entity without compensation. This is commonly done for family planning, charitable giving, or trust funding.
Both sales and gifts can trigger tax consequences depending on policy value, cash surrender value, and the relationship between the parties. Professional guidance is strongly recommended before completing either.
Transferring a Life Insurance Policy to a Trust
Transferring a policy to a trust is one of the most common estate planning strategies. When a policy is transferred to a trust, the trust becomes the policy owner and manages the death benefit according to the trust terms.
Benefits of transferring a policy to a trust may include:
Reducing estate tax exposure
Controlling how and when proceeds are distributed
Protecting beneficiaries who are minors or financially vulnerable
Shielding proceeds from certain creditors
However, timing matters. Transferring an existing policy to a trust can trigger estate inclusion rules if the insured dies within a specified period after the transfer. In some cases, it is preferable for the trust to purchase the policy directly instead of receiving a transferred policy.
Business and Corporate Ownership Transfers
Life insurance policies are often owned by businesses for purposes such as key person coverage, buy sell agreements, or executive compensation plans. When a business changes structure due to sale, merger, or dissolution, policy ownership may need to be reassigned.
Corporate transfers must comply with:
Insurer ownership rules
Corporate governance documents
Tax and accounting regulations
Any contractual obligations tied to the policy
Improper transfers in business contexts frequently lead to denied claims or litigation, especially when ownership records are unclear at the time of death.
Common Mistakes When Transferring a Policy
Many problems arise because transfers are done incorrectly or incompletely. Common errors include:
Failing to file the insurer’s required ownership forms
Assuming a will controls the policy
Changing beneficiaries instead of ownership
Ignoring tax implications
Transferring ownership without confirming insurer approval
If the insurer does not recognize the transfer, it may refuse to honor the new ownership or delay payment after death.
What Happens If There Is a Denied Claim or Ownership Dispute
Ownership issues often surface only after the insured dies. Insurers may deny or delay claims when:
Ownership records conflict
Multiple parties claim control
A transfer was incomplete
A trust was improperly funded
A sale or assignment was challenged
These disputes frequently result in interpleader lawsuits or prolonged claim delays.
Bottom Line
Transferring a life insurance policy requires more than intent. It requires proper documentation, insurer approval, and careful planning. Done correctly, a transfer can protect loved ones, reduce taxes, and ensure benefits are distributed exactly as intended. Done incorrectly, it can trigger denied claims, family disputes, and litigation.
If you are dealing with a denied life insurance claim, a disputed ownership transfer, or confusion over who controls a policy, experienced legal guidance can make the difference between recovery and loss.