Reader’s Question:

I’m trying to learn about life insurance and in some random reading, I came across the terms like policyholder and insured. Are they the same? Or is the term interchangeable?

Kent

New Haven CT

Thanks for asking, Kent

If you look at the meaning of each term for life insurance, you will definitely find that they are different. Nevertheless, the terms are interchangeable only because the two terms can be used for the same person.

To give a straightforward answer to the difference of the two life insurance term, let’s assume a condition: If Mark buys a policy for his own life, he is both a policyholder and the insured. But if Mark’s wife Nancy buys a life insurance for Mark, Nancy becomes the policy holder and Mark becomes the insured. In essence, the policy holder guarantees to enforce the life insurance since he/she is the ones paying. The insured, on the other hand, is the subject of the contract but not necessarily the main participant to the contract. The terms can only be interchangeable if the same person is the policyholder and the insured.

Life insurance companies developed an insurability interest requirement if the policy holder and the insured are different persons. This is to avoid the risk that the policyholder may deliberately kill the insured to get the life insurance. The insurable interest requirement of life insurance is an evaluation that the policyholder (different person) have great loss should the insured die. The insurable interest is usually focused on close family member who is dependent on the insured.

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