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Joint ownership of a policy... so who gets the money?

Received this question from a reader...

Q

My wife and I recently signed up for 'separate' policies and would like clarification on the issue of ownership. Currently each policy is owned by the ‘insured person’ and therefore if the insured person dies, their estate receives the payout. This is not what we want. If I die, I want my payout to go to my wife and vice versa.

If we nominate both ourselves as owners on each policy (joint ownership), then in the event of my death will the payment from my policy be split 50/50 to the owners (ie; 50% to wife, 50% to my estate) or will the entire amount be paid to my wife?... this being our preference.

A

It can get complicated so I’ll keep this answer as straightforward as I can.

If you and your wife have separate policies and you are each the owner of your own policy, then in the event of your death, the payout from your policy goes to your estate and in the event of your wife’s death, the payout from her policy goes to her estate. Pretty straightforward.

If you change the ownership of the policies such that you are joint owners of both policies, then in the event of your death, the payout on your policy will go to the surviving owner... that is your wife... and in the event of your wife’s death, the payout will go to the surviving owner... that’s you.

There can be problem with joint ownership though.

If you and your wife become estranged, she will continue to be the beneficiary of your policy upon your death because she is the surviving joint owner. And there is nothing you can do to change that unless she agrees to sign away her rights. Of course if the split is less than amicable this can be problematic. So you could remain bound in this policy for eternity... literally.

We’re not suggesting for a minute that your marriage won’t stay the distance, but it is important to go into this joint ownership with your eyes wide open.

Also see earlier post.

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