Texas Life Agent Practice Exam

When a third party owns a life insurance policy, which action requires the insured's consent?

1. Change beneficiary

2. Increase the amount of insurance

3. Cash out the policy

4. Transfer ownership

The correct answer is: Increase the amount of insurance

The correct answer relates to the rules governing life insurance policies and the rights of the involved parties. When a third party owns a life insurance policy, any significant changes that affect the insured or the policy's benefits typically require the consent of the insured individual. This is particularly true when it comes to increasing the amount of insurance, as it directly impacts the insured's risk status and could also influence the premiums that need to be paid. In situations where a policy's beneficiary is changed or ownership is transferred, the third-party owner usually retains the authority to make these decisions without needing the insured’s agreement. Similarly, the option to cash out the policy (i.e., take a loan against the policy or surrender it for its cash value) can also often be done by the owner alone, as they hold title to the policy. Consent of the insured is necessary for increasing the amount of insurance since it involves assessing the additional risks that the insurance company would take on. Moreover, the insured's agreement is essential in ensuring they understand and accept the implications of that change, especially as it may also affect future premium payments. Overall, this requirement is in place to protect the interests of the insured.