When you buy a life insurance policy, you do so because the policy’s death benefit will provide financial support to your loved ones. That’s why you choose a beneficiary. Ensure your wishes are met and your loved ones are taken care of when you understand what a beneficiary is and then decide who that will be.
Beneficiary Defined
A beneficiary is the person or entity who will receive the death benefit of your life insurance policy after you die. If your term policy includes a $300,000 death benefit, for example, your beneficiary will receive $300,000 if you die before your policy matures. If you don’t make the choice, your estate will make it for you.
Whom can you Choose as a Beneficiary?
You have options about who can be your beneficiary. Most people choose their spouse, child or other relative who depends on them for financial support. You can also choose a friend, caregiver or more than one person to receive your death benefit.
A trustee can also be chosen to receive your life insurance death benefit. That person oversees your estate and ensures the death benefit is handled appropriately.
An entity can also be a beneficiary. Your favorite charity, college or cause can be the recipient of your life insurance death benefit.
The Levels of Beneficiaries
You can choose between two levels of beneficiaries, primary and contingent. The primary beneficiary receives the death benefit attached to your life insurance policy after you die. If the primary beneficiary has also died, the contingent beneficiary receives the death benefit. Your estate receives the money if neither beneficiary is alive.
Specify the Beneficiaries
When choosing a beneficiary, include as much detail as possible, such as the person’s full name and social security number. This step can ensure your wishes become reality and reduce conflict over who receives the money. As an example, if your beneficiary list includes “wife” but you get a divorce after your policy is issued, both your current and former wives can claim the insurance policy at the time of your death.
You should also be clear about how your death benefit is dispersed. For example, you may wish to give your primary beneficiary the full amount but split the death benefit in half between two contingent beneficiaries. Be as specific as possible to assist your survivors in fulfilling your wishes.
Your life insurance policy is a wise investment. Understand beneficiaries as you choose who will receive the money from your policy after you die. Update your policy often, too, to ensure your wishes are met. Your insurance agent can provide additional assistance as you handle this important detail.
