Understanding your options and who you can and should list as your beneficiaries on your life insurance policy is crucial and one of the most significant parts of the life insurance application process.
Choosing the correct beneficiary ensures that your family or loved ones are protected if something did god forbid happens to you.
The rest of this brief article is going to breakdown the considerations you need to keep in mind when choosing your beneficiaries and give you some useful tips and tricks you can implement when structuring your life insurance policy.
- Why Naming The Right Beneficiary For Your Life Insurance Is So Important
- Tips Toward Naming Your Life Insurance Beneficiary
- Work With A Trusted Independent Life Insurance Agent To Learn More About Your Beneficiary Options
Why Naming The Right Beneficiary For Your Life Insurance Is So Important
Life insurance is only designed to do one thing in most situations.
Protect your family, loved ones, and beneficiaries from financial ruin in the event of an unexpected death.
In some situations, it can also be used as a tax-sheltering tool or leave a legacy.
Nonetheless, without choosing and structuring your beneficiaries in the best possible fashion, you dilute the power and peace of mind that life insurance can deliver.
Point being here is simple.
Beneficiaries are highly important to your life insurance policy and choosing the correct beneficiary for your life insurance and understanding your options is imperative.
Now, we want to start diving into some of the tips you should be keeping in mind when choosing your beneficiary and purchasing your life insurance policy.
Tips Toward Naming Your Life Insurance Beneficiary
The beneficiary of the policy is the person or entity who receives the payment of a life insurance policy after the death of the insured.
The whole concept of purchasing life insurance is centered around taking care of your loved ones when you’re not around.
So often times, choosing a life insurance beneficiary is easy – however there are some circumstances when it’s not so easy.
Take these for example:
- Underage children: Many single parents want to name their underage child as beneficiary. If something were to happen to the parent, the benefit won’t go to your child because they aren’t 18 (19 in AL and 21 in MS), it will go to a legal guardian. Do you trust your child’s legal guardian? If so, no worries here. If not, you should get a trust set up with an attorney and name your trust as beneficiary. This way you have full control of the death benefit.
- Special needs children: Same issues as underage children. Read above.
- Multiple beneficiaries where the owners of the policy are the children. I go into this in depth on this article – life insurance for parents. In a nutshell, if multiple children are buying life insurance on their parents, the death benefit may become taxable.
There are many common mistakes made when listing a beneficiary on your life insurance policy.
Here are some of them:
- Listing “Wife”, “Husband” or “Children of the Insured” as beneficiary. This is too vague and leaves a lot up for interpretation. You want to name specific names for the beneficiary and make sure you keep them updated. You can change your beneficiary at any time by simply completing a form.
- Naming your Bank (if required for a loan). Many people need life insurance to secure a loan and make the mistake of naming their bank as beneficiary. Most life insurance companies will reject a bank or any financial institution being named as the beneficiary because of insurable interest. In this case, you want to name a loved one as a beneficiary and name the bank or institution on a collateral assignment.
Other Considerations When Naming a Life Insurance Beneficiary
If you can, always name a contingent beneficiary on your life insurance policy.
A contingent beneficiary would get the death benefit if, god forbid, both the insured and the beneficiary pass away at the same time. If a contingent life insurance beneficiary isn’t listed, the courts will decide where the money goes.
Tell your life insurance beneficiary (and the contingent beneficiary) about your life insurance policy. They don’t need to know the death benefit is if you don’t want to disclose it.
All they need to know is the name of the life insurance company and that they’re listed as beneficiary.
There are thousands of life insurance policies that are left unclaimed simply because the beneficiary didn’t know about the life insurance.
To file a claim on your life insurance, you don’t need the original policy – the beneficiary just needs to ask the life insurance company for the claim forms.
Like we mentioned earlier, you can change life insurance beneficiaries at any time.
As families change and grow, you want to make sure your life insurance is up to date. We hear stories all the time of an ex-spouse receiving a death benefit simply because beneficiary changes weren’t completed.
Ask your agent or call the life insurance company directly to obtain these easy beneficiary change forms.
Work With A Trusted Independent Life Insurance Agent To Learn More About Your Beneficiary Options
Beneficiaries have always been an important piece of the puzzle when it comes to putting together your life insurance and your financial plan.
They always are and always will be.
Make sure to ask whatever questions necessary to choose the right beneficiaries for your life insurance policy.
Last but not least, work with an experienced life insurance agent who can advise you on choosing a life insurance beneficiary and can answer those questions you may have.
If you have any questions regarding a life insurance beneficiary, please don’t hesitate to contact us.