You’ve come to the conclusion you want to help protect your loved ones by getting life insurance. After researching and speaking to local licensed insurance Agents, you’ve hand-picked the best policy for yourself. Now, you have one last thing to consider as you sign your contracts: who will be your beneficiary?
9 Considerations for Choosing a Beneficiary:
1. Purpose of the policy
Why do you want to be insured? If you have a family you’d be leaving behind who depend on you for income, you may think your spouse is the best person to leave as the beneficiary. Maybe you’re concerned about the legacy of your business. You’ve spent your whole life building up a company you want to protect; in that case, maybe you consider a business partner that would understand how to handle the funds received from your death. Defining why you want a life insurance policy in the first place helps in determining who makes the most sense to receive your benefit.1
2. Know your options
Many may think you have to have one person be your beneficiary. The truth is you have options. You can leave your benefit in the hands of one person, a few people, a trust, a charity, or an estate to name a few. Continue to think about where these funds would best be placed for your situation.2
3. Review it often
Once there’s a verdict on who you want your beneficiary to be, don’t call it a done deal. Your relationships over the years may change. You may get married or divorced, have someone important die in your life, or perhaps you have children. Review your beneficiaries often to be sure they are up-to-date with your current life situation.
4. Assign a contingent beneficiary
It’s important to have it be known who you want your benefit to go to if something happens with the first beneficiary. It’s always good to have a back-up. Sometimes the primary beneficiary can’t be located. Other times, the primary refuses the proceeds, in which case there needs to be someone who will take control of the situation, preferably someone you trust. If you didn’t update your primary beneficiary recent enough, your primary may already be deceased. You may want to put just as much thought into your contingent beneficiary as you do to your primary.2
5. Disqualification of benefits to your beneficiary
When choosing a beneficiary, you should consider how it effects them as well. If they are receiving funds or income from the government because they are disabled, blind, aged, etc., it’s essential you understand how the funds of the benefit may affect their personal payouts. They may only be eligible for financial assistance if they make less than a certain amount of money per year. Even though your benefit may not be direct financing for them to use in their everyday lives, the government may still look at it as an inheritance and they can provide enough for themselves. Consider if you would be disqualifying them from receiving their financial aid.2
6. Language used
The language used to describe who is receiving the benefit is crucial because if you don’t properly state things, you may be discounting someone from your benefits. Be careful if you plan to name people by names such as grandchildren. If another grandchild is born and you forget to update your beneficiaries, one of your grandchildren will be left out of receiving the benefit. Similarly, understand if you specify a group of people such as “all children born from this marriage” and you adopt a child, the adopted child will not receive anything. Be mindful of how you state your beneficiaries so all intended people receive the benefit you want them to.2
7. Minors
Minors are those under the age of 18 years old. Majority of the time, depending on the state, those under 18 or 21 years of age will not receive any funds until they are of a certain age. In this case, you will most likely have to designate a trust or guardian for the benefit. If you do not designate someone for this, the court may choose someone for you – someone who may not necessarily be who you were hoping to control those funds.2
8. Your will
You may be thinking you have beneficiaries for your life insurance stated in your will and you don’t need to specify them again in your life insurance policy. However, do not rely on your will to overrule your life insurance policy statements. What is or is not stated in your life insurance contract may be the final statement.1
9. Results of not having a specified beneficiary
If you opt out of specifying a beneficiary, know you’re forfeiting control of what happens to the funds. The proceeds may be paid to your estate, but the court then decides how the money is handled. This may take away from the funds given. Not to mention, the process for your loved ones to receive the benefit may take longer.1
You’ve come far enough to protect your loved ones; why not take the extra step to ensure your benefit is given to the owner of your choice? You have a lot to think about when it comes to choosing beneficiaries, take your time and talk it over with your licensed insurance Agent and your close family to get a clearer understanding of what may be the best for your situation.
Resources:
- Grangeinsurance.com , 10 tips for choosing a life insurance beneficiary
- Netquote.com , 8 Tips for Choosing a Life Insurance Beneficiary
Categories: Life Insurance, Term Life Insurance, Whole Life Insurance