The person who receives financial protection from a life insurance plan is called a;

Beneficiary.

The beneficiary of a life insurance policy is the person that will receive the money from your policy’s death benefit when you pass away. The day you purchase your life insurance policy, you decide who the beneficiary of the policy will be. For example, you may choose one or all of your children, or your wife or husband. These are some of the most common choices.

Primary & Contingent Life Insurance Beneficiaries

Here are the two most basic types of life insurance beneficiaries:

1. Primary beneficiary: A primary beneficiary is the person and / or persons, who will receive the funds of the life insurance policy. This would take place when the insured person dies. The primary beneficiary won’t receive any proceeds if he or she dies before the death of the named insured on the policy.
2. Contingent beneficiary: Also known as the secondary beneficiary. The contingent beneficiary will not receive any of the insurance proceeds if the primary beneficiary is still alive when the insured person dies. The contingent beneficiary will only receive proceeds from the policy if the primary beneficiary dies before the named insured.

Revocable & Irrevocable Life Insurance Beneficiaries

Here are the two basic classes of beneficiaries;

1. Revocable beneficiaries: The policy owner has the right to change the beneficiary designation at any time without consent of the previously named beneficiary.
2. Irrevocable beneficiaries: The policy owner cannot change the designation of the beneficiary without the consent of the original beneficiary.

Choosing a Life Insurance Beneficiary

It can sometimes be difficult to designate a beneficiary. You’re going to want to make sure you take your time and make the right decision. Below we go through some of the more common choices for life insurance beneficiaries;

• Family: Family members who are dependent on you for both your income and financial support. These are usually the people at the top of most lists of potential beneficiaries. Primary and contingent family beneficiaries can include your wife / husband or domestic partner, your kids, siblings, parents, or any other member of your family.
• Legal guardian: If your named beneficiaries are minors (under the age of legal consent), the life insurance company may require that you name a legal guardian as the beneficiary. Alternatively, you can designate a legal guardian using the Uniform Transfers of Minors Act on their behalf instead of using a legal guardian. Note that even if you have named a guardian as beneficiary, the proceeds will not be paid until the court has specifically appointed a guardian or approved the named beneficiary as guardian for the minor(s).
• Estate: You can designate your estate as beneficiary. The funds will go to the Executor or Administrator of your estate. This is the person or entity designated in the insured’s last will and testament, and who must be approved or designated by the probate court. Keep in mind, you can only use the estate as the named beneficiary if you have drawn up a last will & testament, & must not name a specific person on the beneficiary designation of your policy. Please be sure to discuss the tax implications of naming your estate as beneficiary with your personal accountant, financial advisor or insurance agent (click here to call an agent now).
• Trusts: A trust has be set up before you can designate one or more trustee and name the trust beneficiaries.
• Charity: You are able to name a charity as either the primary or contingent beneficiary.
• Key person life insurance: It’s common practice for a business to purchase life insurance on key personnel in the organization. This type of policy may be owned by the company, in which case the business is typically the beneficiary. The business owner may also buy a life insurance policy and name a co-owner as beneficiary. Enabling the co-owner to purchase the policyholder’s share of the business if the policyholder happens to die.

What If You Want to Name Multiple Beneficiaries?

Say you want to name more than one life insurance beneficiaries, here are a couple ways to go about it.

• Per stirpes: At your digression you can choose your beneficiaries by branches of the family or lineage. What this means is that the life insurance funds would be passed down to be divided equally among the beneficiaries and/or the surviving children of the beneficiaries.
  For example: You, the insured, choose your daughter (Jane) and son (John) as beneficiaries. Your son dies before you do. If you were to pass away next, then your daughter would receive 50 % of the proceeds & the remaining 50 % would then be apportioned equally to all of your son John’s surviving children.
• Per capita: Basically, the proceeds are divided equally among all the beneficiary survivors of the lineage line.
  For example: If we use the scenario above, suppose your son had four children and daughter had zero children when you, as the insured, passed die. The proceeds would then be divided equally between your sons four children and your daughter. Since there are a total of 5 beneficiary survivors, each beneficiary would get 1/5 of the life insurance funds.

What if Your Beneficiary Dies Before You?

If your beneficiary dies before you do, you must rename the beneficiary on the policy ASAP. But, how do you do this? Contact the life insurance company & ask to be sent a “change of beneficiary” form.

If both the insured & beneficiary pass away at the same time, then the proceeds will go to the estate of the insured.

In conclusion; take your time when designating who your beneficiary will be. It’s an important decision that shouldn’t be taken lightly. If you have more questions regarding life insurance, please reach out to one of our wonderful agents. They’d love to hear from you! (Click here to call an agent now)