What Are Life Insurance Beneficiaries & How to Choose One
What if you could show those you love how much they meant long after you have passed away?
A good life insurance policy is the best way to give your chosen beneficiaries a good life after you have gone. Unfortunately, most people who would benefit from buying such a policy don’t know enough about life insurance beneficiaries and how to choose them.
If that sounds like you, we’ve got things covered. Keep reading to discover everything you need to know about choosing a life insurance beneficiary!
What’s a Life Insurance Beneficiary?
A life insurance beneficiary is the person who will receive the death benefit of your policy after you pass away. Who you name as a beneficiary for life insurance is completely up to you. For example, many people designate children or their spouses as recipients. And it’s possible to name multiple recipients, though you will need to specify how much each person should receive.
Many carriers also recommend that you pick out a contingent beneficiary. If your original choice cannot receive the benefit (because they have died, for example, or if they choose to refuse it), your contingent will receive the money you have left behind.
How Do I Designate Life Insurance Beneficiaries?
The beneficiary designation process begins with contacting your carrier and specifying who you want your beneficiaries to be. There are few restrictions on who you can choose, and you can award the benefit to people, businesses, trusts, or even charities.
Most people choose a family member as the recipient to ensure their family won’t suffer in the event of the policyholder’s untimely death. For example, if you are married and leave money to your spouse, you can rest assured they won’t have trouble paying for things like the mortgage or even the cost of your children’s education after you are gone.
You must choose from three different ways to pay the benefit if you have multiple beneficiaries. Under the specific percentage method, you designate exactly how much each party receives.
Under the per stirpes method, the amount is split equally between family members, which also allows your grandchildren to receive their parent’s share if your child passes away before you do.
Under the per capita method, the payout is divided equally but only among your direct family members (meaning that if you left money to three children and one passed away before they can receive the benefit, the two remaining kids would each receive half instead of a third).
What If the Beneficiary Is a Minor?
As we noted before, many people choose to make their children their life insurance payout recipients. However, this can be difficult if the children are minors. Many carriers won’t let you designate benefits directly to minors, but you can still leave money to them by setting up a trust.
To do this, you first create a trust for your child and then make the trust the beneficiary of your life insurance policy. As an added benefit, you can set certain restrictions on the trust, including how old your children must be to receive funds and what they can use the money for (so it can be earmarked for things like a college education). Many parents enjoy this because it means they can ensure their children don’t receive the money at too young an age and waste it on frivolous things.
If you don’t want to establish a trust, you can simply leave the children’s legal guardian as a beneficiary and trust them to distribute funds. Or you can designate a different custodian as a beneficiary who will eventually give them money under the Uniform Transfers to Minors Act.
What Happens If I Don’t Designate a Beneficiary?
The point of designating a beneficiary is deciding exactly what will happen to your money when you’re gone. But what happens if you either don’t take out a policy at all or all your beneficiaries die before you do?
In short, your estate would then become your de facto beneficiary. That may not sound so bad, but surviving family members typically hate it because the estate probate process takes a very long time, and they may end up fighting off creditors for the money that is left. But by keeping your policy up to date, you can ensure that the right people get the money at exactly the right time.
Is It Possible to Change Beneficiaries Later?
Because there are so many careful considerations for selecting a beneficiary, some people worry that they cannot change the policy later. Rest assured, however, that changing the beneficiaries on your policy is as simple as getting a beneficiary change form from your carrier and filling it out (the only exception to this is if you have irrevocable beneficiaries, including from a previous divorce).
In fact, it’s recommended to update your policy regularly and to change beneficiaries as you see fit. Not only does this mean you stay on top of the money and who needs it, but carefully monitoring your policy will make it that much harder for anybody to dispute in court.
Get the Best Life Insurance Today!
Now you know more about what a life insurance beneficiary is as well as how to choose one. However, the quality of your policy is directly related to the quality of your carrier. So, ask yourself: do you know where you can find the kind of life insurance that you and your beneficiaries deserve?
Here at InsureOne, we don’t just sell life insurance…we offer the peace of mind that comes from knowing your family is taken care of. To discover how we can provide the coverage you’ve been dreaming of, get a quote online, call us at 800-836-2240, or feel free to come into one of our convenient nearby offices.