Who Should Your Life Insurance Beneficiary Be?
For anyone who has obligations and people they need to take care of in the event of a worst case scenario, life insurance is a necessity. And one of the most important considerations when taking out a life policy is who to name as beneficiary. This may seem pretty straightforward, and in some cases it is. However, beneficiary designation can be more complicated than many people realize.
Here are seven things to keep in mind when choosing a beneficiary for your life insurance policy:
Designate both a Primary and Secondary (Contingent) Beneficiary: It is always a good idea to designate a secondary (or contingent) beneficiary in the event that your primary beneficiary is deceased. Otherwise, the proceeds from your life insurance policy could be tied up in probate for an extended period of time, causing major inconvenience to those you leave behind.
You Can Designate Multiple Beneficiaries: You are allowed to name one or more beneficiaries (both primary and secondary). For example, if you have remarried and have children from a previous marriage, you may want to designate your spouse as 50% primary beneficiary and your children to receive equal shares of the other 50%.
Designate a Guardian for a Minor Beneficiary: If one (or more) of your beneficiaries are minors, you will need to designate a legal guardian to ensure the proceeds are distributed to the minor beneficiary when he/she reaches the legal age for an adult in your state.
Your Estate Can be a Beneficiary: If you want the proceeds from your life policy to be used to pay the expenses of your estate, distributed by the executor to beneficiaries, etc. you may choose to designate your estate as the primary beneficiary. Before exploring this option, it is highly advisable to speak with a tax professional about potential tax implications.
Consider Naming a Charity as One of the Beneficiaries: If you have a church, charity, university or other non-profit you would like to donate a large amount of money to but were unable to do so in your lifetime, you can choose a designated organization as one of the beneficiaries (either primary or secondary).
With Most Policies, You can Change the Beneficiary Designations at Any Time: Keep in mind that your beneficiaries are not etched in stone unless you choose to make them irrevocable. So if/when circumstances change in the future, you can always update your policy to reflect these changes.
Make Sure to Let Someone Know you Have Life Insurance and How to Access the Policy
This last point is sometimes overlooked. When you take out a life insurance policy, be sure you inform someone (or better yet two or three people) you trust that you have the policy and how to gain access to it. Otherwise, there is a risk that the insurance benefits will go unclaimed.
There are numerous other considerations around life insurance and designating beneficiaries. To ensure your needs are fully addressed, speak with your local life insurance agent.