Which ownership arrangement is suitable for a parent purchasing a life insurance policy for their child?

The correct answer highlights the concept of third-party ownership, which is particularly relevant in the context of a parent purchasing a life insurance policy for their child. In this scenario, the parent is the policy owner while the child is the insured. This arrangement allows the parent to manage the policy, make premium payments, and maintain control over the benefits that would be paid out upon the child's death.

Third-party ownership is commonly used in circumstances where the individual being insured may not have the financial means or legal ability to enter into a contract themselves, such as minors. By utilizing third-party ownership, the parent ensures that the life insurance policy is appropriately managed and that the death benefit can provide financial support to the family or serve as an inheritance for the child when they reach adulthood.

The other ownership arrangements do not suit this scenario as effectively. Mutual ownership, for example, suggests shared ownership, which is not applicable when one party (the child) is not the direct payer or owner of the policy. Joint ownership often implies that both parties have rights and responsibilities to the policy, which could complicate decision-making if the child is too young. Common ownership typically refers to similar rights and obligations split among co-owners, which doesn’t fit the dynamic of a parent-child relationship