Life insurance policies are designed to provide long-term protection, but circumstances often change over time. Whether you’re updating beneficiaries, adjusting coverage amounts, or changing ownership, it’s important to understand the legal requirements involved in making policy changes.
1. Policyowner’s Authority Only the policyowner—the individual who owns the policy—has the legal right to make changes. If someone other than the insured owns the policy (such as a spouse, parent, or business), only the owner can request updates.
2. Written Consent is Required Most changes to a life insurance policy must be made in writing. Insurers typically require a formal change request form, signed by the policyowner. Verbal agreements or informal requests (like emails) are not sufficient.
3. Beneficiary Changes
- Revocable Beneficiaries: If the beneficiary designation is revocable, the policyowner can change it at any time without needing the beneficiary’s consent.
- Irrevocable Beneficiaries: If a beneficiary is designated as irrevocable, the owner must obtain written permission from the beneficiary before making any changes that affect their rights.
4. Ownership Transfers Transferring ownership of a policy is a legal process that involves signing a transfer of ownership form. New owners assume full rights, including the ability to make future changes and receive the death benefit.
5. Changes to Coverage Amounts
- Increasing Coverage: Some insurers allow increases in death benefits but may require additional underwriting, including health evaluations.
- Decreasing Coverage: Decreasing the death benefit usually requires written consent and may impact premiums.
6. Policy Loan and Withdrawal Adjustments If you have a policy with cash value, taking a loan or withdrawal against it must follow the insurer’s formal procedures. These actions often require a signed request and may have tax implications.
7. Assignment of the Policy Assigning a policy (such as for collateral on a loan) requires a legal assignment document submitted to and accepted by the insurer. Once assigned, certain rights transfer to the assignee until the assignment is released.
8. Timing and Approval Changes typically become effective only once the insurer processes and approves the request. Simply submitting a request does not automatically update the policy; official confirmation is required.
9. Legal and Tax Implications Some policy changes, especially ownership transfers and large cash withdrawals, can have significant legal or tax consequences. It’s wise to consult with a legal or financial professional before making major modifications.
Final Thoughts Making changes to a life insurance policy involves more than just a simple request—it requires following formal legal processes to ensure that updates are valid and enforceable. Understanding these requirements helps protect your rights and ensures that your policy continues to meet your evolving needs.
