In a Key Employee Life Insurance policy, who cannot be the third-party owner?

In a Key Employee Life Insurance policy, the third-party owner is typically the employer, who takes out the policy on the life of a key employee to protect the business from financial loss in the event of that employee's death. The insured, in this case, is the key employee whose life is covered by the policy.

When the insured is also the owner of the policy, there can be complications, especially concerning the purpose of the insurance. Since the policy is intended primarily to benefit the employer—by providing funds to replace the employee or sustain the business during a transition period—they generally should not be the policy's owner. This maintains the policy's intent and ensures that the employer is the party who can utilize the benefits effectively.

The beneficiary of the policy can be the employer or any other entity designated by the policy owner, and the insurance company serves as the issuer of the policy. Therefore, having the insured as the third-party owner does not align with the structure and intent of a Key Employee Life Insurance policy.