Death benefits: What is a beneficiary?
Life insurance is something that everyone should have, but nobody really enjoys thinking about. When you’re considering life insurance policies, it’s critical that know what a beneficiary is so that you can figure out the best strategy to protect them.
Selecting a beneficiary for your insurance policy can be as difficult as deciding which type of life insurance to get. No one can tell you who your beneficiary should be. And there are several factors that you’ll have to consider.
So, what is a beneficiary exactly? And how should you select one? Continue reading and we’ll walk you through everything you need to know.
What Is a Beneficiary?
If you’ve been paying your premium on your life insurance policy, then a death benefit will be paid out by your insurer when you die. The person to receive the death benefit is your beneficiary. This person can be your child, spouse, or a charity of your choosing.
Depending on the state you live in, there may be laws in place that place restrictions on who you can and can’t select to be your beneficiary. If you want, you can also have multiple people as your beneficiaries.
When you select your beneficiaries, you’ll need to have some of their basic information. This includes their full names, birthdates, and Social Security numbers. You want to give as much information as possible so that it will be easy to identify and pay your beneficiaries.
You’re also going to have to choose several types of beneficiaries. For example, you’ll need your primary beneficiary and your contingent beneficiary.
Primary Vs. Contingent Beneficiaries
Your primary beneficiary is going to be the first person to receive the benefits of your life insurance policy when you die. Your contingent beneficiary will only receive your benefits if the primary beneficiary isn’t able to accept the money.
If your primary beneficiary is still alive and available to accept the money after you die, then the contingent beneficiary won’t receive anything.
Revocable Vs. Irrevocable Beneficiaries
You’re also going to have to designate your insurance beneficiary as revocable or irrevocable. A beneficiary who is revocable is someone who you can remove at any point, without having to notify them. If you purchase a life insurance policy while you’re single, but think you might have a spouse someday, then this could be a useful option.
If you designate someone as an irrevocable beneficiary, then that person can’t be taken off of your policy without their consent. So if you name your spouse as your irrevocable beneficiary, you won’t be able to switch them later unless that person consents to it.
Can Anyone Be Your Life Insurance Beneficiary?
You can select anyone to be your life insurance beneficiary. However, if you’re married, then, depending on the laws of your state, you might have to get consent from your spouse before you can name a different person as your beneficiary.
Let’s go over some of the most common choices when it comes to choosing a life insurance beneficiary.
The majority of people pick their spouse as their primary life insurance beneficiary. The point of life insurance is to help your family financially after you die. By leaving money to your husband or wife, you’ll be able to make sure that they don’t struggle to pay the bills or feed the kids.
And if you live in a community property state, then you have to designate your spouse unless they consent otherwise.
It’s generally not recommended to select your children as your beneficiaries if they’re still minors. It’s fairly difficult to pay out a large sum to a minor without having to navigate through legal red tape.
If you select a minor as your beneficiary, then your death benefit will be put into a trust and a court-appointed guardian will oversee that trust. The guardian then watches over the money until your beneficiary reaches the state’s “age of majority.”
You can designate a friend or business partner as a beneficiary. You can basically choose anyone you want to be your beneficiary. Just make sure you follow all of the laws that regulate spousal consent.
Charities and Organizations
You can also select an organization as your beneficiary. Many people select charities and organizations as beneficiaries if their family is already well-off.
When someone is incarcerated or has a felony on their record, the world of life insurance becomes a lot more tricky. There are several reasons as to why life insurance companies are hesitant to deal with people who have been convicted.
Ty Stewart from Simplelifeinsure.com explains that it may be hard for someone with a felony conviction to get life insurance because they are more likely to have poor health from time spent incarcerated.
Life insurance companies tend to associate people who were in prison with high-risk behavior. This means their chances of having to pay out a claim may be higher.
And if you happen to be someone’s primary beneficiary while you’re incarcerated, there’s a good chance you won’t receive payment. The payout will likely go to the contingent beneficiary.
If it doesn’t go to the contingent, it may go to the victim depending on the crime you were convicted of, the jail system, or your next of kin.
The Importance of Knowing About Life Insurance Beneficiaries
Hopefully, after reading the above, you now know the answer to the question, “What is a beneficiary?”. And by understanding what a beneficiary is, and how the selection process works, you can make more informed and confident decisions when it comes to your life insurance policy.
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