When you buy life insurance, you must name one or more beneficiaries. The designated beneficiary is the person who will receive the death benefit should you pass away before your time. A sudden death due to an accident or illness leaves the family bereft, but the life insurance benefit allows them to move on without suffering serious financial problems. The benefits are taxed and not paid out quickly, but the waiting time required for an estate to go through probate.
Choose a beneficiary for your life insurance
People have different reasons for buying life insurance. In many cases, the beneficiary is a spouse, child, parents or other relative – but these are not the only options. If you are an entrepreneur, you can choose to make your company the beneficiary. If you have a charity that you support, you can choose to name that charity as the beneficiary. You can choose to appoint a trustee of an established trust, or your estate. You have many options, and choosing your beneficiary is one of the most important issues when purchasing life insurance.
Change a beneficiary
Life events can lead to having to change beneficiaries. The birth of a child, a marriage, a divorce or starting a new business may make it necessary to change the named beneficiaries on your policy or insurances. To change the named beneficiary(ies), you must request a Change of Beneficiary form from your insurance company. You, as the owner of the policy, are the only person who has the right to change the beneficiary in most cases.
A person who has given power of attorney to another person, it gives that person the right to make financial decisions on your behalf. If the beneficiary of your policy is listed as an “irrevocable beneficiary,”
Name more than one beneficiary
You can choose to name several individuals or other entities as beneficiaries of the death benefit in your policy. It is imperative that you list the percentage of the benefit you want to go to each party, and how that percentage will be divided if a named beneficiary passes away.
Primary or contingent beneficiary
Your primary beneficiary will receive the death benefit, but should that person die, you should name a contingent beneficiary. The beneficiaries cannot be changed when the policy owner dies. In some rare cases, the policy owner dies while in the process of changing beneficiaries. In this case, the insurance company makes the final decision about the recipient of the payment of the benefits.
Many choose to form a life insurance fund. The life insurance is the trust’s asset. After the life insurance is transferred to the insurance trust, the individual no longer owns the policy. In the event of death, the payout goes to the trust, which allows for some control over how the funds are used. These trusts are often a strategy used by people with estate tax concerns. Once an irrevocable life insurance trust is established, it cannot be changed.
Need help? Talk to us.
Protecting the financial health of your loved ones with life insurance is an important step for people of all ages. Our local agents can help you find the best policy for your situation or review your current policies and identify the current options on the market that may offer higher payouts with lower monthly premiums, and assist you with any questions regarding beneficiaries, insurance trusts and any other concern.