Difference Between the Policyholder and Insured in Life Insurance

A life insurance policy refers to a legal agreement between an insurance company (insurer) and the owner of the policy (policyholder). In addition, the policy comprises another party termed as the insured.

The insurer in a policy promises to pay an amount to the beneficiary in the event of the death of an insured person within the policy’s term. This is why you need to understand a policyholder and an insured person before buying an insurance policy.

To avoid confusion regarding these terms, keep reading about policyholder vs. insured.

As a legal agreement, a life insurance policy involves two entities. While the entity that buys an insurance plan is called a ‘Policyholder’, another party that sells the insurance and provides insurance coverage is called an ‘Insurer’.

Mostly, the breadwinner of a family becomes the ‘policyholder’ and ‘insured’ since buying insurance provides income replacement for their dependents in case they pass away.  However, you need to note that the policyholder and insured should not necessarily be the same individual.

In a life insurance contract, ‘insured’ is an important entity. Like the policyholder, the insured's name is recorded in the insurance policy. The ‘insured’ is an entity or individual who gets financial coverage in an insurance plan.

If the insured person dies, the insurance provider remains bound to compensate for death claims, also known as a death benefit to beneficiaries. In most insurance policies, an insured person and a policyholder are the same, even though it is not mandatory. So, an insured person and a policyholder can be different individuals.

The term ‘policyholder’ refers to the person who has purchased the policy. However, the ‘named insured’ is the person or entity whose name appears at the top page of the insurance policy contract and receives all its protections.

For instance, if you purchase a health insurance policy for yourself, you are the policyholder and the named insured. Meanwhile, if you buy a health insurance policy for your wife, you are the policyholder, and your wife is the named insured.

If an insured person is a policyholder, that individual has several duties and responsibilities.

• The duties of a policyholder (insured person) are:
  • Providing every piece of information with honesty
  • Completing proposal form on their own
  • Furnishing the name of the ‘insured’ ( if a different person) and the ‘nominee’
  • Attaching all necessary documents while buying an insurance policy
  • Not making any fake declaration
  • Making a claim if such circumstances arise as per provisions
  • Furnishing the required documents to recover the claim
• A policyholder (insured) remains responsible for the following:
  • Deciding the sum assured and term of coverage
  • Paying the premium of a policy as per the due date
  • Determining the nominee or beneficiary who receives the sum assured in the event of the death of an insured person
  • Making any kind of policy change, like changing the beneficiary's name or adding the name of more beneficiaries.

Now, have a look at some fundamental rights of policyholders.

The insurance policyholder has the right to

• Select an insurance plan they wish to buy from an insurer of their choice without being pressured by any insurance agent.
• Shifting their investments between different funds in a ULIP.
• Reject obtaining anything instead of provisions of an insurance policy.
• Take opinions from various insurance providers and compare them before purchasing an insurance plan.
• Obtaining loans and keeping an insurance policy as collateral in a financial emergency.
• Surrender cash value policy whenever necessary and obtain the principal amount of the insurance plan.
• Add riders or additional benefits to an insurance plan.
• Make complaints to the respective authority regarding the mismanagement of insurers if any dispute arises.

Now, you can clearly understand the details about policyholder vs. insured. Having this knowledge will be beneficial when buying an insurance policy. However, remember that the terms and conditions of insurance plans vary from insurer to insurer.

Thus, ensure you check them thoroughly after going through the duties and responsibilities of an insured and policyholder rights as stated above.