Texas Life Insurance Practice Exam 2025 - Free Life Insurance Practice Questions and Study Guide

The appropriate insurance arrangement for a parent purchasing a life insurance policy on a child is third-party ownership. This arrangement occurs when one party (the parent) owns the insurance policy on another party (the child). In this case, the parent has the ability to control the policy, including making premium payments, changing the beneficiary, and accessing any cash value that may accrue.

Third-party ownership is commonly used in situations where the insured person is a minor or where the owner of the policy wishes to ensure that there is a financial benefit in place for the insured’s future, such as providing for their education or covering unforeseen expenses. Since a child typically cannot enter into a legal contract for insurance on their own, the parent takes on the role of the policyowner.

In this context, direct ownership would not apply as the child cannot own the policy, and while beneficiary designation is an element of insurance policies, it does not pertain directly to the ownership aspect in this scenario. Policy assignment involves transferring ownership from one party to another, which is not relevant at the point of initially purchasing the policy. Hence, third-party ownership stands out as the correct choice for this situation.