Which concept refers to proof that a person owns an insurance policy by exercising certain rights?

Which concept refers to proof that a person owns an insurance policy by exercising certain rights?

• A. Annuity
• B. Dower
• C. Incidents of ownership
• D. Fair market value

Answer: (C)

The situation tests the idea that ownership of a life insurance policy is shown by the ability to exercise the rights that come with ownership. Those rights are called incidents of ownership. When a person actually acts in ways a policy owner can—such as borrowing against the policy’s cash value, paying the premiums, changing the beneficiary, or transferring or assigning the policy—that demonstrates they hold incidents of ownership. Those actions prove they’re the owner, not merely a named beneficiary or someone with a limited interest. This concept matters in probate and estate tax contexts because who has incidents of ownership determines whether the policy proceeds are treated as part of that person’s estate. If someone truly holds these rights, the policy is typically considered owned by them for purposes of inclusion in their estate. The other options don’t fit this idea: an annuity is a different financial product, dower concerns a spouse’s rights to property in certain jurisdictions, and fair market value is simply a price measure, not a proof of ownership.

The situation tests the idea that ownership of a life insurance policy is shown by the ability to exercise the rights that come with ownership. Those rights are called incidents of ownership. When a person actually acts in ways a policy owner can—such as borrowing against the policy’s cash value, paying the premiums, changing the beneficiary, or transferring or assigning the policy—that demonstrates they hold incidents of ownership. Those actions prove they’re the owner, not merely a named beneficiary or someone with a limited interest.

This concept matters in probate and estate tax contexts because who has incidents of ownership determines whether the policy proceeds are treated as part of that person’s estate. If someone truly holds these rights, the policy is typically considered owned by them for purposes of inclusion in their estate. The other options don’t fit this idea: an annuity is a different financial product, dower concerns a spouse’s rights to property in certain jurisdictions, and fair market value is simply a price measure, not a proof of ownership.