How To Choose a Life Insurance Beneficiary – When choosing a beneficiary for your life insurance policy, it is important to consider the consequences of your decision. Your choice will show in your legacy and make a statement to those you leave behind. Therefore, it is better to select someone who would benefit the most from the money. Since most people can’t select just one beneficiary, they often choose a lot of people to divide the death benefit.
Ultimately, who you choose as your beneficiary depends on your present situation, your state laws, and the individuals in question. Although no particular rule says who can be a beneficiary, selecting a minor can have certain implications. It is also important to keep in mind that you can change your beneficiary at any time. Just ensure to inform whoever you name as your beneficiary of when and where to file a claim.
What is a Beneficiary?
Your life insurance beneficiary is the person or persons who will get funds from your policy if you pass away. When you sign a life insurance contract, you elect a beneficiary by name, and only that person can file a claim for the death benefit. You can choose almost anyone to be your life insurance beneficiary, and you can even name more than one person.
Types of Life Insurance Beneficiaries
Selecting the right type of beneficiary is crucial to making sure that your life insurance benefits are shared according to your wishes. The lists below are the most common types of life insurance beneficiaries:
Primary Beneficiary:
This is the main person or persons who will get the death benefit. If the primary beneficiary is still alive at the time of the policyholder’s death, they will get all the benefits.
Contingent Beneficiary:
This is also known as a secondary beneficiary; this person or entity will get the death benefit if the primary beneficiary is unable to claim it or has passed away.
Revocable Beneficiary:
This type of beneficiary can be changed by the policyholder at any time without informing the beneficiary, giving the policyholder more flexibility in managing the policy.
Irrevocable Beneficiary:
Unlike a revocable beneficiary, changes to an irrevocable beneficiary require you to inform the beneficiary. This makes it a more secure arrangement for them.
Those are the four (4) types of life insurance beneficiaries that we have.
Who Can Be a Beneficiary?
Naming a beneficiary is an important step when talking about life insurance. It makes sure that funds are delivered to the right people who will need financial support when you are dead. You can choose anyone as a beneficiary, which is as follows:
- Family members (including spouse or partner, children, brothers, sisters, and so on).
- Friends.
- Organizations.
- Business partners.
- Trusts.
The decision to choose a beneficiary often reflects your relationships, financial responsibilities, values, and long-term goals.
How to Choose a Life Insurance Beneficiary
Choosing a life insurance beneficiary is a vital way to provide funds for those who will need financial support when you are gone, like a spouse or adult children. There are only three (3) steps you need to take, which are as follows:
Designating a Beneficial
There are two options to consider when designating a beneficiary, which are revocable and irrevocable. With a revocable beneficiary, you can change the beneficiary at any point in time. On the other hand, an irrevocable beneficiary cannot be changed or have their share of the death benefit changed without their consent. If you decide to cancel the policy, you must also inform an irrevocable beneficiary.
Deciding how the Death Benefit Will Be Paid
When choosing how the death benefit will be paid to beneficiaries, there are only two (2) options to consider, which are per capita and share. With per capita, the amount is divided equally among all beneficiaries, often among children. Per Stirpes, if a child dies before the policyholder, the grandchildren will receive the share that would have otherwise gone to the deceased child. This can be beneficial in protecting grandchildren, particularly if they have lost a parent.
Setting up a Trust
Setting up a trust is another way to protect your loved ones. The life insurance proceeds go into the trust and can be distributed according to the trust’s rules. This is a great way to make sure that your grandchildren or any other loved ones are taken care of.
Frequently Asked Questions
What Happens If You Don’t Choose a Beneficiary?
When you apply for life insurance, you will be asked to name a beneficiary who will get the death benefit proceeds in the event of your death. If you choose not to name a beneficiary, the proceeds will become part of your estate and will be shared according to the probate court’s ruling. It is important to give your beneficiary the necessary information they need to file a claim. If you refuse to do so, it may result in the proceeds becoming unclaimed property in your state.
Can I change my life insurance beneficiary?
Yes, it is 100% possible to change your life insurance beneficiary, and it is the best thing for you to do if your life circumstances change, like if you get a divorce or if your primary beneficiary passes away.
How long does it take for a beneficiary to receive the death benefit?
Once a valid claim is submitted, beneficiaries typically get the death benefit within the range of 14 to 60 days, although this timeline can vary depending on the company and the exact circumstances surrounding the claim. There may be delays if there are questions about the policyholder’s cause of death or if there are discrepancies in the information provided.
What happens if my beneficiary passes away before me and I don’t have a contingent beneficiary?
If your primary beneficiary dies before you and there is no contingent beneficiary named, the death benefit will become part of your estate and will be subject to probate. It will then be spread according to your will or state law if you do not have a will in place.