When buying life insurance, it\u2019s crucial to name a life insurance beneficiary. They will be the ones to receive the death benefit if you die while the policy is still in force. This means choosing your beneficiary is an important step in owning a life insurance policy. <\/p>\n\n\n\n
After all, your beneficiary is probably the reason you have life insurance in the first place.<\/p>\n\n\n\n
But deciding who gets the payout may not be as simple as you think \u2014 state laws and policy rules can influence or even restrict your choices. You need to read the fine print and become familiar with how your life insurance company handles beneficiaries.<\/p>\n\n\n\n
A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name:<\/p>\n\n\n\n
If you don\u2019t name a beneficiary, the death benefit will be paid to your estate.<\/p>\n\n\n\n
Your life insurance policy should have both \u201cprimary\u201d and \u201ccontingent\u201d beneficiaries. The primary beneficiary gets the death benefits if he or she can be found after your death. Contingent beneficiaries get the death benefits if the primary beneficiary can\u2019t be found. If no primary or contingent beneficiaries can be found, the death benefit will be paid to your estate.<\/p>\n\n\n\n
As part of naming beneficiaries, you should identify them as clearly as possible and include their social security numbers. This will make it easier for the life insurance company to find them, and it will make it less likely that disputes will arise regarding the death benefits. For example, if you write “wife [or husband] of the insured” without using a specific name, an ex-spouse could claim the death benefit. <\/p>\n\n\n\n
On the other hand, if you have named specific children, any later-born or adopted children will not receive the death benefit\u2014unless you change the beneficiary designation to include them.<\/p>\n\n\n\n
Besides naming beneficiaries, you should specify how the benefits are to be handled if one or more beneficiaries can\u2019t be found. For example, suppose you have two children and you name each one to receive half of the death benefit. If one of the children dies before you do, do you want the other child to get the entire death benefit, or the deceased child\u2019s heirs to get his or her share?<\/p>\n\n\n\n
Choosing beneficiaries, and keeping those choices up-to-date, is an important part of owning life insurance. The birth or adoption of a child, marriage or divorce can affect your initial choice. Review your beneficiary designation as new situations arise in order to make sure your choice is still appropriate.<\/p>\n\n\n\n
You can name anyone as a life insurance policy beneficiary. You can name family members, friends, charitable organizations, children or the guardians of your children. Trusts can also be named as beneficiaries.<\/p>\n\n\n\n
Some state laws may require you to name your spouse as your primary beneficiary, getting at least 50% of the benefit. In some states, you may be able to name someone other than your spouse as a beneficiary if you have documented permission from your spouse to do so.<\/p>\n\n\n\n
The nine community property states that say a spouse has a right to 50% of a life insurance death benefit are:<\/p>\n\n\n\n
The beneficiaries you choose when you purchase a policy must have an \u201cinsurable interest\u201d in your life. This means they have more to lose than gain by your death, whether that’s financial or otherwise. Most insurers will ask you to list the relationship you have with a beneficiary when you fill out the form (for example, “spouse,” “friend” or “domestic partner”).<\/p>\n\n\n\n
Naming a life insurance beneficiary is an important way to provide funds for those who will need financial support when you pass away. This is often a spouse or adult child.<\/p>\n\n\n\n
If you name multiple beneficiaries \u2014 whether primary or contingent \u2014 you can choose how much of the payout each party receives. For example, if you name your spouse, child and a local charity as primary beneficiaries, you might allocate 50% to your spouse, 30% to your child and 20% to the charity. <\/p>\n\n\n\n
No matter how you divide a life insurance payout among beneficiaries, the percentages must add up to 100%. If you don\u2019t list the percentages, the insurer may grant equal shares to each beneficiary.<\/p>\n\n\n\n
You cannot change an irrevocable life insurance beneficiary designation without the beneficiary\u2019s approval. For this reason, irrevocable designations aren’t common. However, they can be useful if you want to make sure the death benefit reaches a specific person, such as your child. <\/p>\n\n\n\n
Irrevocable designations can be used in a divorce agreement to ensure a former spouse isn’t removed from the policy without consent. They\u2019re also sometimes used in certain business situations, such as to guarantee repayment of a loan.<\/p>\n\n\n\n
In contrast, a revocable life insurance beneficiary designation is flexible. You can change, update, add or remove a revocable beneficiary at any time. This grants you the freedom to update your designation to match your current needs.<\/p>\n\n\n\n
There are also options when choosing how the death benefit will be paid to beneficiaries.<\/p>\n\n\n\n
When it comes to protecting grandchildren, nothing works as well as setting up a trust for all, or at least some, of the money from your policy. <\/p>\n\n\n\n
With a trust, the life insurance proceeds automatically go into the trust and can be distributed according to the trust\u2019s rules.<\/p>\n\n\n\n
The reasons why you\u2019re buying life insurance should drive your choice. Do you want to provide financially for your family after you\u2019re gone? If so, your spouse might be the best choice. If you want your company to continue, it might be your business partner. <\/p>\n\n\n\n
Choose a policy and life insurance beneficiary that helps you continue your goals.<\/p>\n\n\n\n
When choosing a life insurance beneficiary, there are more options than your spouse or kids. Generally, if you own the policy on yourself, you can designate any one or more of the following as a beneficiary:\u202f<\/p>\n\n\n\n
You can also decide if the life insurance proceeds will be paid out in one lump sum or a series of payments.\u202f<\/p>\n\n\n\n
One of the most common oversights with a life insurance policy is not keeping the beneficiaries up-to-date. Say you\u2019re single and name your mother as the primary beneficiary, but later on you get married. If you didn\u2019t update the beneficiary on your policy, then the proceeds will still go to your mother.\u202f <\/p>\n\n\n\n
You can avoid having an outdated life insurance beneficiary by reviewing your policy annually. Talk to your agent with any questions you may have.\u202f<\/p>\n\n\n\n
In addition to keeping your beneficiaries current, remember to be specific when you name them. If you name \u201cmy children\u201d as beneficiaries and one of them dies before you, do you want the other child(ren) to get the entire benefit or the deceased child\u2019s heirs to get their parent\u2019s share?\u202f<\/p>\n\n\n\n
On your policy, the primary beneficiary is the person(s) or entity you select to receive the life insurance proceeds upon your death. However, if your primary beneficiary can\u2019t be located, refuses the proceeds, or is deceased at the time of your death, then a secondary (or contingent) beneficiary becomes the recipient. <\/p>\n\n\n\n
Primary and contingent beneficiaries can be equally important, so make sure you follow the same advice for selecting a secondary beneficiary as you would for choosing the primary one.\u202f<\/p>\n\n\n\n
State regulations may limit if or how much a minor child can receive from life insurance proceeds, so the court may have to appoint a\u202fguardian\u202fto administer the funds. That can be a lengthy process, and one that typically requires multiple court dates. <\/p>\n\n\n\n
To avoid this, consider setting up a trust or designating an adult you trust to oversee the distribution of the money to the minor.\u202f<\/p>\n\n\n\n
Make sure your wishes are honored by having your will match your life insurance policy. If you update your will, take the time to update your life insurance beneficiaries (and vice versa). In the event your will and life insurance beneficiaries do not match, your life insurance beneficiary designations will win out every time. <\/p>\n\n\n\n
Remember, life insurance is a contract and will be enforced as it is written.<\/p>\n\n\n\n
According to the Social Security Administration, a person who is aged, blind or disabled and receives Supplemental Security Income (SSI) and\/or Medicaid could potentially have their monetary benefits reduced or suspended if their inheritance increases their income, based on program eligibility. If one of your beneficiaries needs to use these benefits to help their financial situation after your death, consider federal regulations before adding them as a beneficiary.<\/p>\n\n\n\n
Typically, in community property states, your spouse will have to sign a waiver if you designate someone else to be the beneficiary. Check with your\u202findependent agent\u00a0for more details or to ask questions surrounding designating your life insurance beneficiaries in your state.\u202f<\/p>\n\n\n\n
If you do not designate any beneficiaries (or all of them predecease you), the life insurance proceeds will be paid to your estate. If that happens, the probate court will decide how to handle the funds. This could take a while and possibly chip away at the proceeds. <\/p>\n\n\n\n
So, in order to get the money into the hands of those who need it as soon as possible, designating a specific beneficiary is the way to go.<\/p>\n\n\n\n