What defines an "insurance trust"?

An "insurance trust" is defined as a legal entity that holds and manages life insurance policies and their benefits for the benefit of designated beneficiaries. This structure is particularly useful in estate planning, where the trust can help in managing and distributing the policy's proceeds according to specific instructions laid out by the trust creator. Because the trust owns the insurance policy, it can also help avoid probate, simplify the transfer of assets, and provide tax benefits, ensuring that the benefits are distributed in a manner that aligns with the trustor's wishes.

This arrangement allows for a clear, legal framework for managing the life insurance proceeds, giving the trustee the responsibility to handle the policies and their payouts for the beneficiaries. This is crucial for ensuring that the benefits are used responsibly and according to the terms set out in the trust agreement.

In contrast, the other options do not accurately represent the concept of an insurance trust. One option suggests a focus on policyholder management over multiple companies, which does not pertain to the legal entity aspect necessary for a trust. Another option refers to a type of insurance policy exempt from premium payments, which does not align with the operational or legal framework of an insurance trust. Lastly, an informal arrangement regarding payouts lacks the formal legal structure that defines a trust