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A Complete Guide to Life Insurance as a Beneficiary

When someone you love dies, the last thing you want to worry about is money. If that person had life insurance, however, you may be able to avoid some of the stress. This guide will walk you through everything you need to know about Life Insurance as a beneficiary. We’ll cover who can be a beneficiary, what happens when the policyholder dies, and how to file a claim. Let’s get started!

What is a life insurance beneficiary?

If you die while your policy is still in effect, your life insurance beneficiary receives the death benefit. This implies that selecting a beneficiary is an essential part of purchasing a life insurance policy. After all, isn’t it likely that your beneficiary was the reason you obtained life insurance in the first place?

Though it might seem like an easy decision, picking your life insurance policy beneficiary is more complicated than you may think — state laws and company policies can have a big impact on who gets the payout. Before making any decisions, take some time to read the fine print and familiarize yourself with how your life insurance company handles beneficiaries.

Who is eligible to be the beneficiary of a life insurance policy?

There are many different types of life insurance beneficiaries, including people, organizations and trusts. Here are some common examples:

  • A human, like your spouse.
  • More than one person, such as your kids.
  • A trust.
  • Your estate.
  • A nonprofit organization.
  • Your company is a legal entity.

Some insurance providers limit the number of beneficiaries you can list. If your policy has a limitation, make sure it’s appropriate for you before filling out your list.

Choosing a life insurance beneficiary is an important decision.

It’s not always straightforward to decide what to do. The finest option may not be the most readily apparent one. Begin by considering why you need life insurance:

  • If you were to die, who would be financially burdened and in need of help paying bills?
  • Who would need money to pay for expenses related to your death, like a funeral?
  • Who do you want to be given money to, regardless of whether they need it, such as a charity or a trust for your children?

When it comes to naming a life insurance beneficiary, keep things simple. If you write “spouse” or “child,” the insurance company may be unsure who should get the money if you remarry or have additional children.

Make sure to include any information that might help the provider locate your beneficiaries, such as each beneficiary’s complete name, Social Security number, relationship to you, date of birth and address. Make certain you’re using the proper terms.

Once you’ve eliminated the possibilities, consider how much money each beneficiary would require and split the death benefit accordingly.

Contingent and Primary beneficiaries

There are two distinct sorts of beneficiaries: primary and contingent.

The person (or people) who would get the death benefit from your Life Insurance Policy first — generally your spouse, children, or other family members — is a major beneficiary.

Most policies let you name a backup beneficiary, called a “secondary” or “contingent” beneficiary, in case your primary beneficiary dies before or at the same time as you. If all of the primary beneficiaries are deceased, then the secondary beneficiaries receive the death benefit.

Why is it necessary to name a beneficiary?

Because most financial services, including life insurance benefits, are not governed by your will, the only way to ensure that your policy’s advantages are delivered as you intended is to be sure that you’ve named a beneficiary for all of your policies and accounts.

When you name a beneficiary for your life insurance policy, it means that the people you care about will receive money after you die — which is often the main reason why people buy life insurance in general. Your other assets can also do this same thing.

What happens if I don’t designate a beneficiary?

If you don’t choose a beneficiary, it’s possible that no one will know who is entitled to the money, which might cause the grant payment to be delayed.

If you die without naming a beneficiary for your retirement account, such as a 401(k), your assets will likely go through probate. Probate is a legal process in which the court reviews your financial situation and decides how to distribute your assets.

If you don’t name a beneficiary, most life insurance policies have a default order of payment. For individual policies, the death benefit often goes to the policy’s owner if they’re still alive and different from the insured person. If not, it goes to their estate. Group insurance tends to start with spouses, then kids, then parents before turning to estates.

If your policy doesn’t specify a default order, the payout may go to your estate or may be tied up in probate.

In either situation, the probate procedure might be time-consuming and complicated, and it may take years for your loved ones to access your assets — which can be avoided if you name them as beneficiaries.

Beneficiaries can be added, deleted, and changed

At any time, you may usually alter, add, or remove revocable life insurance beneficiaries. The techniques to do so differ based on the insurer. Some firms need a change of beneficiary form notarized by a witness, while others enable you to make changes online.

When should you change your beneficiaries?

Following divorce, remarriage, or the death of a loved one who may be listed as one of your beneficiaries, beneficiary changes are frequently overlooked.

In a few jurisdictions, divorce may cancel a designated spouse’s right to receive a benefit, so you’ll need to re-designate with an updated relationship (from “spouse” to “ex-spouse”) if you want the designation to continue.

A great way to keep your beneficiaries updated is by revisiting the details of your accounts and insurance policies during your employer’s annual benefits enrollment.

Set aside a fixed day each year, such as May Day, Labor Day, your birthday, and ten minutes checking your accounts and policies if you do not receive benefits from your employer.

Is it possible for someone other than you to receive your benefits?

If you fail to notify your beneficiaries about changes or make a mistake in documenting them, someone other than the person you intended may get your assets or policy proceeds. This is why carefully choosing and remembering to update recipients is so critical.

If you’re concerned about making a mistake when naming your beneficiaries, consult with a financial advisor or attorney to ensure that your intentions are carried out as intended.


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