What does third-party ownership mean in insurance?

Third-party ownership in insurance refers to a situation where the policyholder and the insured are different individuals. In this scenario, one person (the policyholder) purchases an insurance policy for the benefit of another person (the insured), often used for various reasons, such as estate planning or insuring a family member. This concept is significant because it allows individuals to control the policy, including premium payments and beneficiaries, while the insured person may not necessarily be involved in the transaction.

For instance, parents often purchase life insurance policies for their children, making them the insured, while they hold ownership of the policy. This arrangement facilitates financial protection for the child’s future without requiring them to manage the policy themselves. It underscores the flexibility within insurance provisions concerning ownership and benefits, serving various family and financial planning needs.