Natural persons, business entities and capacity

Identify the legal person before the signature

A natural person is a human individual. A corporation is a separate legal person created under legislation. A partnership is a business relationship among partners; its legal treatment and the partners' liability differ from incorporation. A sole proprietorship is the proprietor's business rather than a separate corporation. These distinctions determine who owns a policy, who pays premiums, whose creditors may have claims, and who can validly give instructions.

A business's trade name does not by itself establish a separate legal owner. If Jordan operates a sole proprietorship called Harbour Design, writing only the trade name on an application can obscure that Jordan is the contracting person. If Harbour Design Inc. is a corporation, the corporation can own insurance independently of Jordan's personal assets. Verify the legal name and form rather than infer them from a logo.

For a corporation, a director or officer signs in an authorized capacity. The agent should obtain the insurer's required evidence of authority, such as a resolution or relevant corporate documentation. The person signing, the corporate owner and the life insured may be three different parties. A president's personal identification does not alone prove authority to surrender corporate property.

Partnership and corporate applications

Partners may arrange insurance for a buy-sell agreement or protection against the loss of a key person. The arrangement must specify ownership, premium responsibility and entitlement to proceeds. A partnership agreement may limit a partner's authority even where partners normally act as agents of the firm. A policy intended to fund a purchase of a deceased partner's interest needs coordination with the actual agreement.

Corporate continuity also matters. A corporation normally continues despite the death of a shareholder. The shareholder's estate may inherit shares, but it does not automatically become the owner of every asset belonging to the corporation. If the corporation owns a policy on an employee, the employee's death does not move policy proceeds into the employee's personal estate merely because the employee was also a shareholder.

Compare two hypothetical arrangements:

The agent's role is to identify these facts and seek legal or tax advice where structuring exceeds competence. Insurance should support the arrangement that actually exists.

Majority and the special insurance-capacity rule

Age of majority is provincial or territorial. It is generally 18 or 19 depending on the jurisdiction. General minority rules therefore cannot be applied without checking location. Insurance legislation can also confer specific capacity before ordinary majority.

For example, BC Insurance Act section 72 gives a minor aged 16 or older adult capacity to make an enforceable life-insurance contract and exercise contractual rights, except in respect of rights as a beneficiary. Section 110 provides the corresponding A&S capacity rule. Ontario's life-insurance provision is section 202. These rules do not limit a sixteen-year-old's capacity only to insuring a spouse or child.

The beneficiary exception is crucial. A sixteen-year-old owner can have contractual capacity while a sixteen-year-old beneficiary cannot necessarily give the receipt required for a large death-benefit payment. Ownership powers and entitlement to receive funds are different legal questions. Do not use the special contracting rule to bypass arrangements for a minor beneficiary.

Mental capacity is decision-specific

A person must have the legal capacity required for the transaction. A medical diagnosis, age or use of support does not alone establish incapacity. Capacity can fluctuate and can depend on the decision. An agent should assess whether the person appears to understand the essential nature and consequences of the proposed instruction, while recognizing that legal determination may require professional assistance.

If a client cannot understand that surrendering a policy ends its death benefit, obtaining a signature does not resolve the concern. Slow the transaction, provide an accessible explanation and involve the insurer's compliance process. If an authorized representative is needed, verify the governing instrument and its scope. A relative does not acquire property authority simply by accompanying the client.

A financial power of attorney, guardianship order and personal-care authorization serve different functions. A personal-care decision-maker may have no authority over insurance investments. A financial attorney's ability to change a beneficiary may be restricted by legislation even where surrender or premium payment is permitted. Keep these questions separate.

A capacity and authority workflow

Before accepting instructions, identify the owner, the signer and the legal basis for signing. Check age-related capacity, any concerns about understanding, and any representation document. Then confirm that the requested action falls within the signer's authority and does not conflict with irrevocable beneficiary or assignee rights.

Suppose a shareholder's daughter asks to surrender a corporate policy after the shareholder becomes ill. Being next of kin does not give her authority over corporate assets. Her father's personal financial power of attorney may not appoint her as an officer of the corporation. The agent should request the appropriate corporate authorization and insurer review.

Document the facts without making unsupported medical judgments. An accurate file might record the client's questions, the explanation provided, the authority document reviewed and why processing was paused. This supports respectful treatment and prevents an unauthorized transaction from being disguised as routine customer service.