The Ins and Outs of Naming a Beneficiary
September 10, 2016
The whole idea of naming a beneficiary for your life insurance policy is to protect your loved ones from financial hardship. These beneficiaries can count themselves privileged if they receive the life insurance policy’s payout when the policyholder dies.
Naming a beneficiary means you want to know that the payout will reach the right person or people when you die. Mistakes can happen. And not only can this cause lots of unnecessary expense, but they can also put stress on your loved ones.
Before naming a beneficiary, understand who can be named. The most frequent beneficiaries include:
- a charity
- the insured’s estate
- a trust
Most people choose a spouse, sibling, parent or child to be their beneficiary. When you choose a beneficiary, you’ll need to give full names, birth dates, addresses and the portions you intend for them.
About Naming a Beneficiary
- Review your policy after any major live-changing event such as marriage, divorce or birth.
- Some people will say it’s a mistake to tell someone they are the beneficiary. Many people have disposed of the policy holder to get their payout and have landed up in prison instead.
- Don’t name a minor as a beneficiary as while they are under 21 they can’t access a life insurance death benefit. It is better to set up a trust to manage the money. And if you don’t do this, the court will handle distributing the death benefit for you. This situation can cause a host of complications. You also can’t leave assets to an animal directly. However, you can include a provision in your will that lays out what you want to happen to your pets. You can also set up a trust for the purpose of providing funds to care for your pets after you’re gone.
- You can name a charity as a beneficiary. You can also name multiple beneficiaries in your Will. But then you will need to decide on the distribution of assets among those beneficiaries.
- If you’re a spouse, don’t assume you’re going to be a beneficiary. The policy owner can name who they want as a beneficiary. Insurance companies could care less who you name as a beneficiary – they simply pay out the money.
- There are two kinds of beneficiaries: primary and contingent.
- The primary beneficiary is the one who will receive the payout of the life insurance policy when the insured person passes away.
- The contingent or secondary beneficiary only receives the life insurance proceeds if the primary beneficiary passes away. They won’t be receiving any payout if the primary beneficiary is alive and well when the policyholder dies. The tertiary beneficiary is the person who will receive the life insurance policy proceeds should the primary and secondary beneficiary be unable to do so.
- There are also two types of beneficiary: Revocable and Irrevocable. With revocable beneficiaries, the owner of the life insurance policy has the right to change the beneficiary designation without the consent of the previously named beneficiary. With irrevocable beneficiaries, the owner of the life insurance policy can’t change the designation of the beneficiary without the approval of the original beneficiary.
- Some people just don’t designate a beneficiary. When there’s no living beneficiary, the proceeds typically go to your estate, which is not a good choice because if you do have a family they might have to wait a long time to get the money. When life insurance benefits go to an estate, unfortunately, creditors can also claimed them.
Sound Advice on Your Investments
Deciding whom to leave your money isn’t the easiest decision. Even when you’ve got a spouse and children, there can be doubt. Get help from a trusted attorney. Trusted Choice isn’t an insurance company, but they have done plenty of research into looking for the best independent insurance agents who are waiting to serve you.
An Independent Agent can find the best life insurance for you, because as an independent agent in the Trusted Choice network, they can guide you and answer all your questions so you arrived at the most important and best decisions regarding insurance.
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All info was correct at time of publishing