How can a policyholder legally arrange life insurance for their own life that benefits a third party?

How can a policyholder legally arrange life insurance for their own life that benefits a third party?

• A. By assigning the policy to the third party
• B. By establishing a trust for the third party
• C. By designating the third party as an irrevocable beneficiary
• D. By making the third party a co-insured party

Answer: (B)

In life insurance, a policyholder can arrange for a third party to benefit from the insurance by establishing a trust for that third party. This legal mechanism allows the policyholder to specify how the benefits from the life insurance policy will be managed and distributed upon their death. By creating a trust, the policyholder designates a trustee, who will ensure that the benefits are paid to the intended third party in accordance with the policyholder's wishes. This ensures greater control over the asset than simply naming the third party as a beneficiary directly. The other options present different methods of structuring benefits but may not accomplish the same legal and financial implications as a trust. For example, assigning a policy or designating an irrevocable beneficiary may provide a benefit to the third party, but a trust offers more detailed management and security for assets intended for the beneficiary, allowing the policyholder to ensure that their wishes are followed even after their passing.

In life insurance, a policyholder can arrange for a third party to benefit from the insurance by establishing a trust for that third party. This legal mechanism allows the policyholder to specify how the benefits from the life insurance policy will be managed and distributed upon their death. By creating a trust, the policyholder designates a trustee, who will ensure that the benefits are paid to the intended third party in accordance with the policyholder's wishes. This ensures greater control over the asset than simply naming the third party as a beneficiary directly.

The other options present different methods of structuring benefits but may not accomplish the same legal and financial implications as a trust. For example, assigning a policy or designating an irrevocable beneficiary may provide a benefit to the third party, but a trust offers more detailed management and security for assets intended for the beneficiary, allowing the policyholder to ensure that their wishes are followed even after their passing.