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A guide for life policyholders

What is a life insurance beneficiary?

A beneficiary is a person (or entity such as a charity or company) who will receive the life insurance payment if the insured dies while the insurance is in force (active).

The policyholder selects the beneficiary and decides how much each beneficiary receives if there is more than one.

Can I name more than one beneficiary?

Yes, you can name more than one life insurance beneficiary. You also choose what percentage each beneficiary receives. In addition, you can specify how the income is distributed should a beneficiary die.

John Smith is married and has two children. He and his brother also share the tasks of caring for their elderly mother.

John Smith decides to buy life insurance. He wants to ensure that his family is taken care of financially even if he dies unexpectedly.

He buys a $ 500,000 life insurance policy. He names his wife and brother as the two main beneficiaries.

He sets the policy so that 80% of the death benefit ($ 400,000) goes to his wife and 20% of the death benefit ($ 1

00,000) goes to his brother.

In addition to primary beneficiaries, you also have the opportunity to name contingent grant recipients.

Primary beneficiaries are first in line to receive the payment of the death benefit. If the primary beneficiary or beneficiaries have died or are otherwise unable to receive the income, the conditional beneficiary or beneficiaries are next in line.

It is not necessary to name a contingent recipient, but it is a good idea. If your primary beneficiary dies at the same time as you or before you and you have no conditional beneficiaries listed, the insurance death benefit is paid to your estate and then remains in the estate register until the court decides where the money goes.

Who can be a life insurance beneficiary?

Your beneficiary (ies) can be a person or entity, such as a charity or a company, a trust or your property.

In most cases, you can choose who you want to be the beneficiary of your insurance. However, if there is no obvious insurable interest, the insurance company may ask for an explanation as to why you chose that beneficiary.

Note: Insurable interest rate means that the beneficiary would feel a negative financial impact as a direct result of your death.

There are three parties to a life insurance policy: the policyholder, the insured and the beneficiary. Insurance owners should avoid these three parties being three different people to avoid unnecessary taxes.

John Smith owns a life insurance policy for his wife, Jane, and names their adult son, Brad, the primary beneficiary.

When Jane dies, John donates a large sum of money (the death benefit) to Brad, from a state tax point of view. This gift will then be subject to tax if it exceeds federal limits.

Closest family members

Naming a spouse or partner is the most common beneficiary in life insurance. More than likely, they would suffer financially from your death.

The main purpose of buying life insurance is to reimburse the income you provide to your family. If you die, your surviving partner / spouse will receive a death benefit check from the insurance company.


When buying a life insurance policy, you can think about your children first. Your children are completely dependent on you for many years.

However, you should not mention any minor children as your life policyholders.

If you die and they are not yet legal adults, the court will appoint a real estate agent to administer these funds until your children reach legal age. This litigation requires legal fees, court proceedings and judicial review of life insurance benefits – all of which take time and money.

If you want life insurance money to go to your young children, instead list a trusted adult as the beneficiary who will handle the money on behalf of your children.

Or open a living foundation, name the foundation to the recipient of the life insurance, and a trustee can handle the money on behalf of your children according to the terms of the foundation.

Or you have the option of naming your minor children as beneficiaries of your life insurance under your state’s Uniform Transfers to Minor Act (UTMA).

If your children are already legal adults, you can name them as life policyholders without any problems.


Charities and small businesses are units commonly referred to as life insurance recipients.

To name a charity as a beneficiary, you probably need to show that you have a history of contributing to the organization. Also, be sure to tell the organization that they are a beneficiary or how do they know they will take out the benefit if you die?

A company can be listed as a beneficiary in buy-sell agreements and key personal insurance. Life insurance can be beneficial in many situations for a small business owner.


There are certain situations where it may be better to name a trust as the beneficiary of a life insurance policy instead of an individual.

Naming trust instead of an individual may be best about your beneficiary:

  • Is a minor
  • Has special needs or disability
  • Have creditor problems
  • Have problems with alcohol or drug abuse
  • Can not be trusted with large sums of money.

With a trust, you can specify when and how much your loved one can receive. A manager you choose manages the funds according to your wishes.

Your property

In most cases, it is not wise to name your property as a life insurance policyholder. It increases your total taxable property. In addition, money in an estate goes through probate before your loved ones get it.

However, if you do not name any beneficiaries or if your named beneficiary dies before or at the same time as you and you have not named any conditional beneficiaries, your property is often the default beneficiary. That is why it is recommended to appoint at least one quota recipient.

What information do I need?

When you fill out the beneficiary designation form, you usually need the following information about your beneficiary:

  • Full legal name
  • Date of birth
  • Relationship to you
  • The taxpayer’s ID number or SSN

But not all life insurance companies require the same information.

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