Life Insurance Beneficiary Tips

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Life Insurance BeneficiaryA life insurance beneficiary 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 the 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 beneficiary because of insurable interest.  In this case, you want to name a loved one as beneficiary and name the bank or institution on a collateral assignment

Helpful Tips on 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.

Beneficiary for Life InsuranceTell 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.

Last but not least, work with an experienced life insurance agent who can advise you on choosing a life insurance beneficiary and answer any questions you may have.

If you have any questions regarding a life insurance beneficiary, please don't hesitate to contact us.

 

About Jeff Root

is the owner of rootfin.com. He’s an independent life insurance agent who has helped 1,000’s of consumers purchase life insurance online and over the phone.

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1 Comment

Hey Jeff,
I think what actually happens in most states if the parents of a minor child die and leave that minor child as beneficiary, is the money goes into trust for that child (not to the child’s guardian as you wrote).

December 13, 2012 at 2:01 am
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