Who Can Be Your Life Insurance Beneficiary?
So, you’ve decided to buy a life insurance policy and need a designated beneficiary. Choosing someone to receive the benefit from your policy is an important part of the process. The money from a life insurance policy can help out your designated loved one, and can be used to support them financially in the event of your death.
With a named beneficiary, the policy can provide financial support quickly. Without one, the funds will be added to your estate which may mean a lengthy legal process to get to the right person. So how can you choose the right beneficiary for your life insurance?
Who Can Be a Beneficiary?
In most cases, beneficiaries are loved ones – spouses, children, parents or siblings. They are often people who are dependent on your income so that you can provide financial stability in the event of your death. Keep in mind that children under the age of 18 or 21 (depending on your state) aren’t able to receive the funds and the money will need to be designated to a guardian or a trust. If setting up a trust is what you want to do, you will need to talk to an attorney.
What Are Other Options for Choosing a Beneficiary?
Believe it or not, you don’t have to choose a person as your beneficiary. Can you name a pet? Sadly, you can’t name your pets as life insurance beneficiaries. But you can name a trust or charity to benefit from your policy.
You can name a trust as your beneficiary
A trust is a legal arrangement where an individual, commonly called a trustee, manages your assets but does not benefit from them. The trustee holds onto your assets, which are then passed on to your designated loved ones at a time chosen by you.1
You can name a charity as your beneficiary
If you have a cause that is special to your heart, you can name a charity or nonprofit as your beneficiary. Your life insurance premiums may also be tax-deductible with this option.
If either of these options sound good to you, talk to a tax/legal professional for more information.
What is a Secondary Beneficiary?
In some cases, you may outlive your beneficiary. You can choose a secondary beneficiary on your life insurance policy to ensure that your funds are properly distributed in the event of your death. Without a secondary beneficiary, you risk your policy payout going towards your estate. This can get caught up in probate, which is the legal process of distributing your assets in court.
Who Can Be a Secondary Beneficiary?
The same rules apply to your secondary beneficiary as your first. Call your insurance provider if you need to update your policy’s beneficiaries. You’ll also need to fill out a “Change of Beneficiary” form.
Can You List Multiple Beneficiaries?
You can list a group of people as your beneficiary. For instance, you can have “grandchildren of the insured” listed on your policy. This will let your grandchildren receive portions of the life insurance policy. If you want each grandchild to receive the same parentage, note that. However, you can split it in any way that you choose.
For example, one grandchild can get 60 percent while the other two receive 20 percent each.
You’ll want to keep your policy up-to-date if you name your grandchildren to it. Make sure your insurance company is aware if another grandchild is born. If this grandchild should be listed on your policy, let the company know.
What if You Have a Different Beneficiary Listed in Your Will?
The life insurance beneficiary on your policy needs to match the person listed on your will to receive this amount. If it does not match, the beneficiary designated on your policy will overrule the person named in your will.2 Double-check that all of your listed beneficiaries are updated. You don’t want any confusion to arise that could cause a delay in the event of your death.
How Can You Change Your Beneficiaries?
Life happens. Call your insurance company if you need to update your beneficiaries. You’ll also need to fill out a change-of-beneficiary form. Regardless, always make sure your life insurance beneficiary is up-to-date.
Once you decide, let designated loved ones know that they’re listed on your life insurance policy. This way, they know what to do and who to contact when the time comes.
Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.
1 Investopedia. (2018, April 14). Trust. Retrieved June 21, 2018, from https://www.investopedia.com/terms/t/trust.asp
2 Anspach, D.(2017, August 28). Anspach, D. Did You Know Beneficiary Designations Override Your Will? Retrieved June 21, 2018, from https://www.thebalance.com/why-beneficiary-designations-override-your-will-2388824