A grantor of an insurance policy is a person or trust to which certain ownership rights of a life insurance policy have been transferred. This is normally done when an individual or family trust is engaged in estate planning. A life insurance policy can increase the value of an individual’s estate and provide resources to continue to pay taxes and other expenses. Incidents of ownership for a life insurance policy can exist when the grantor retains certain rights to the policy. The grantor is a person or trust to which the life insurance policy has been transferred.
Beneficiary Changes
One type of incident of ownership this is retained by a grantor is the right to change the beneficiary of the policy. When an insurance policy is purchased one of the requirements is to name a beneficiary to pay the policy’s death benefit. When a grantor retains interest of ownership the beneficiary can be changed on the policy at any time.
Policy Cancellation
An additional right that is provided to the grantor or a policy when an interest of ownership exists is the right to cancel or surrender the life insurance policy. When an insurance policy has been canceled or surrendered the insurer returns will unpaid premium. The insurer will also pay out the cash value of the policy if any exists.
Obtain a Loan
When an interest of ownership exists on a life insurance policy the grantor has the right to obtain a loan from the policy. When a loan is obtained from a life insurance policy the amount cannot exceed the cash value or surrender value of the policy. This means that if a life insurance policy has a cash value of $5,000 the grantor can take out a loan up to that amount.
Receive Benefits
The benefits of a life insurance policy are paid when the owner of the policy dies. When an interest of ownership exists the grantor can receive the policy’s death benefit in the event of the death of the primary beneficiary. This can be done because the grantor retains the right to change the contingent beneficiaries of the policy.
Change Payments
The grantor of a life insurance policy who has an interest of ownership can change the amount of the death benefit and when it is paid. A grantor may want to change the how the benefit is paid because the beneficiary may not be of proper legal age. The grantor may also want to spread the benefit amount over a longer period.