Having a life insurance policy means you’ll need to choose a beneficiary. It’s not always a simple decision, though, and you’ve probably got some questions about the whole process. That’s what we’re here for – to tell you everything there is to know about a life insurance beneficiary. So read on and make sure you make the right decision about who gets your life insurance death benefit.
What is a life insurance beneficiary?
A life insurance beneficiary is a person you choose to receive your death benefit if you pass away. They get a financial payout as a result of your death and are probably the reason you took out a policy in the first place.
Choosing your beneficiary shouldn’t be taken lightly; it’s not like deciding which scoop of ice cream you want at Baskin and Robins, though there are arguments to be made that you shouldn’t take that decision lightly either. But that’s a story for another time.
Even if you have someone in mind, you might not be able to name them as the beneficiary. State laws and policy rules can dictate or restrict your preferred choice. Therefore, you should study the Ts and Cs in your life insurance policy to see if there are any stipulations over who becomes your beneficiary.
Who can be a beneficiary?
Pretty much anyone can be a beneficiary, including minors in some states, such as your children. Organizations and trusts may also act as a beneficiary, though this is less common. If you’re looking for the full list, these are all the people and organizations that can be your life insurance beneficiary:
- A person
- Your children
- Your estate
- A trust
- A legal entity, such as your company
- Charitable organizations
The most popular type of beneficiary is a spouse, with 59% of those holding a life insurance policy naming their partner as the sole benefactor.
Should I always choose my spouse?
Certainly not, especially if you don’t have one. While the majority of policyholders name their spouse, you should pick the person who you want to be financially stable in the event of your death.
Life insurance beneficiaries are completely separate from those named in your will, so you could still technically name your spouse in the will but use someone else as the life insurance beneficiary. It really is up to you. Just make sure that you leave the death benefit to someone (or something) that’s important to you and will benefit from the money paid out to them.
What is a contingent beneficiary?
When you choose a life insurance beneficiary, it’s possible to select a primary and contingent option.
- Primary – this is the first person who receives the death benefit if you pass away
- Contingent – also known as secondary beneficiaries, the contingent gets the death benefit if the primary option dies before you do.
You can even name a final life insurance beneficiary. This is someone who receives the death benefit if the primary and contingent both die before you.
Tips for choosing a life insurance beneficiary
Think about the purpose of the policy
Many people go for a permanent policy so they can build wealth while they’re still alive, with the death benefit acting as a handy bonus. Others opt for a policy with the sole idea of protecting their loved ones and nothing else. Before you decide on the beneficiary, ask yourself why you’re getting coverage.
Know the options on the table
Again, understanding who you can name will help make the decision easier. Explore any specific rules around a policy and naming a beneficiary, and ensure that you have all the info to hand before making a decision.
Don’t disqualify beneficiaries by accident
The Social Security Administration states that a person who is aged, blind, or disabled and receives Supplemental Security Income (SSI) could have their benefits reduced or suspended if any form of inheritance increases their income. So if you’re thinking of using a beneficiary who uses these benefits, make sure that you understand all the stipulations first.
Can I change my beneficiary?
The process isn’t too taxing should, for any reason, you wish to change your beneficiary. You’ll need to request a beneficiary change form from the life insurance provider and fill in details about the new beneficiary. The only circumstance where you wouldn’t be unable to change the beneficiary is if you’re declared legally incompetent.
How does a beneficiary claim life insurance?
By making sure the hairdryer accidentally falls in the bath while you’re in it. We jest. We jest. Obviously, the last thing those your loved ones want is to see something terrible happen to you. But should you pass away, the beneficiary will need the following to make a claim:
- Your death certificate
- A copy of the life insurance policy
- A claim form from the insurer
- Death certificate for the primary beneficiary
It’s really important that your beneficiary has a copy of your life insurance policy along with the insurer’s contact details. You might also decide to grant them access to your life insurance account if it’s accessible online or a record of your premium payments. Doing so reduced the chances of a dispute between the insurer and beneficiary.
What happens if I don’t choose a beneficiary?
Should you decide against choosing a life insurance beneficiary, the insurer usually issues the death benefit to your estate. There may also be a scenario where they give your death benefit to a specific order outlined in the policy.
In conclusion: Choosing a life insurance beneficiary
Having a life insurance beneficiary is important for making sure that the right person receives your death benefit if you pass away. That’s why you should take your time and select someone who you want to see get financial assistance if you die. Do that, and you and your beneficiary can both feel confident that everyone is looked after if the worst happens and there are no questions about who receives the payout.