Published: | Updated: September 10, 2017

Definition - What does Transferability mean?

Transferability refers to a feature of a life insurance policy that allows for the transfer of ownership. In other words, the policyholder can sell it or simply gift it to another party.

Insuranceopedia explains Transferability

Transferability may be exercised either by passing ownership of the policy to another person for free or through a negotiated sale. In case of the former, the policyholder might pass it to a spouse, business partner, adult child, or a person close to them. This way, upon the insured's death, it is not part of their taxable estate as they no longer own the policy. Second, some investors buy life insurance policies at a discounted rate. In doing so, they become the beneficiary and take over paying all of the subsequent premiums. This guarantees a principal, like a bond, but the maturity is uncertain as the insured person may live longer than expected. The returns decrease the longer the insured lives, but the yield often is high due to the discounted price.

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