Via life insurance Beneficiary, most Americans purchase life insurance for multiple reasons. It can be to provide an income for a friend, pay off a mortgage, or fund outstanding college expenses. It can also be to pay for a funeral or final expenses.
Unlike reasons to buy life insurance, it is important to name a life insurance beneficiary. Read through this article, and find out what a life insurance beneficiary is, who can be a life insurance beneficiary, and how to choose a life insurance beneficiary.
What is a Life Insurance Beneficiary?
A life insurance beneficiary can be a person or an entity, that you put in charge of the death benefit from your life insurance policy once you die.
The person responsible is paid the death benefit because your life insurance policy serves as a contract between you & the person. This means that the face amount of the policy goes to your beneficiary, regardless of what others around you say.
You have access to select multiple beneficiaries, and you can choose how much of the death benefit you want to offer to the person.
Life insurance policies can also be used to keep track of businesses. In this aspect, even a company can be named as a beneficiary, if the owner is no more there.
The affordable life insurance amount and the nature of the policy could affect whose name you would like to offer as the beneficiary. Consider these four types of life insurance:
- A term life insurance policy with a frame of about 30 years might be enough for seeing your children through college or maintaining businesses.
- A small burial insurance policy: where it’ll have to pay for your funeral.
- A universal life insurance policy, can be an effective way for those with assets to offer out as inheritance to their heirs.
In whatever way, it’s best to select the beneficiary.
Primary X Contingent Beneficiary
The Life Insurance Beneficiary is classified into two major parts, which include the Primary beneficiary & the secondary Beneficiary.
A primary beneficiary receives the death benefit when the policyholder dies, while the secondary beneficiary comes in place when the primary beneficiary is dead or somehow can’t collect the death benefit.
Another name for the Secondary beneficiary is called the Contingent beneficiary. One can have one or more primary beneficiaries and one or more contingent beneficiaries. See the differences between primary and contingent beneficiaries below:
- Primary Beneficiary: receives the death benefit only when the policyholder dies.
- Contingent Beneficiary: receives the death benefit only if the primary beneficiary can’t receive it, for instance, if the person already died or does not want to take part in the death benefit.
It will be wise to name at least one contingent beneficiary included to a primary beneficiary just for the record.
It could be family members, friends, charitable organizations, children, or guardians taking care of your children if you were to die.
If both the primary and contingent beneficiaries die before the policyholder, the policy’s death benefit goes to the policyholder’s estate. Who do you think can be a Life Insurance Beneficiary? See the following subheading…
Who’s Qualified to be a Life Insurance Beneficiary?
Anyone can serve as a life insurance policy beneficiary, including charities, trusts, and estates, they all can be named as beneficiaries.
Note that some state laws might recommend you to name your spouse as your major/primary beneficiary, collecting at least 50% of the benefit.
In some states, you are free to name anyone other than your spouse as a beneficiary, even though you have documented permission from your spouse to do so. How to choose a Life insurance beneficiary, see the next session.
How to Choose a Life Insurance Beneficiary
Picture a way to provide funds for who or what you want while thinking of naming a life insurance beneficiary, it can be your spouse, a favorite charity, a pet, or your own funeral.
Mostly, policyholders focus on the ones who direly need the payment if the owner dies. And this person or persons should be someone that’s most reliant on your income or savings.
Beneficiary Designation Options
There are two options that come to mind when designating a beneficiary:
- Revocable: In this aspect, you can switch who you want as your beneficiary at any time during the period of your insurance policy.
- Irrevocable: This can’t be removed from the policy or have their share of the death benefit changed without the benefactor’s consent. Instead, an irrevocable beneficiary must be notified if you cancel the policy.
Take decisions on How the Death Benefit will be Paid
There are also options to consider when selecting how the death benefit will be paid to beneficiaries:
- Per Capita (by “head”): Here, they split the amount equally between all beneficiaries, which often happens to the children.
- Per Stirpes (by “branches”): Here, once a child predeceases the policyholder, his or her children’s branches receive what would be shared among the living children. Per Stirpes is an important tool for protecting grandchildren, especially if they’ve lost their parents.
See the subheading below, and find out when to update, change, add, or remove beneficiaries.
When to Update, Add or Remove Beneficiaries
It’s nice to review your life insurance beneficiaries at least once a year to ensure that you’re still comfortable with who/what you’ve listed. Instances that could make you reconsider the decision could be divorce, marriage, or the death of a loved one.
Meanwhile, a life insurance policy seems to be a contract. This a living document (while the policyholder is still alive), and its beneficiaries can easily be changed at any time with either an online form or a request form.
It’s up to you to change your likes & dislikes. For instance, one child can step up to assist during an illness while the other sits on the bench & watch. remarriage or divorce can also lead to change, especially of there are children to consider.