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Life insurance beneficiary rules

If you’re looking for life insurance, good news: You’ve come to the right place. (We recommend starting with a free online life insurance quote.)

And if we were to guess, you’re buying life insurance because you’ve realized that someone (or someonepp) depends on you and your income to pay for things, from groceries to rent or a mortgage to everything in between.

That someone is what they in the life insurance industry call a beneficiary, even though you might think of them as a dependent. And chances are you’re thinking about life insurance because you’re wondering how the dependent would pay for things in the event you̵

7;re not around.

A life insurance policy is a good idea – you pay a monthly premium and in return you get life insurance coverage worth the total value of your policy. For example, for just $13.23 per month, a 25-year-old woman in excellent health can get a 25-year Haven Term policy worth $250,000.

That money would go to your next of kin in the event of your death, usually as a (tax-free!) lump sum.

I get it? Good. Then you’re ready to learn the ins and outs of naming your life insurance beneficiary—a spouse, a family member, a friend, or even a charity.

Read on and learn more about beneficiary rules before drafting your beneficiary designation.

What is a life insurance beneficiary?

A beneficiary is the person or entity (such as a trust or organization) that you designate to receive the proceeds of your life insurance in the event of your death.

The beneficiary is usually named by you when the policy is purchased or can be updated later. You can have more than one, and you can designate anyone as yours primary beneficiaries and contingent beneficiary, which we will explain later.

What are the basic rules for naming a beneficiary in your life insurance policy?

You can name one or more beneficiaries and specify the percentage of the death benefit that each will receive. For example, you can designate your spouse as the primary beneficiary, who will receive 100% of the death benefit.

Alternatively, you may have several adult children. You can name multiple beneficiaries to share these benefits however you see fit.

Who you can name

When choosing a life insurance beneficiary or beneficiaries for your life insurance death benefits, you can choose almost anyone you want. Usually it’s your spouse or other relative, but there’s nothing stopping you from naming a charity, a foundation (for your kids), or even throwing a few percentage points at your favorite neighbor. (Good Gus.)

You can also name contingent beneficiaries, who only receive a portion of your death benefits under qualifying circumstances (such as the death of a primary beneficiary).

In general, this is a fairly simple process. You name a beneficiary and that person receives the death benefit if something happens to you. That said, there is one particular situation you should be aware of, which we go into in more detail below.

If you have a minor child or children

For most people, a partner or spouse will be your primary beneficiary, as that person would take on the financial responsibilities left after your death.

The logical next step is to name your children as contingent beneficiaries – that is, they would receive the death benefit if your partner was unable to fulfill these financial obligations. (For example, if you both died in the same accident.)

However, if your children are minors, they would not be able to receive the death benefit directly by law. Instead, the life insurance proceeds would be paid to a guardian or custodian of the child’s estate. If you do not name a guardian or custodian in your will, the court will appoint one based on who the child lives with and who is legally entitled to care for the child’s welfare.

Suffice to say, this is a less than ideal situation, so it’s best to clearly name a guardian while you’re still alive. (And remember: The guardian should not (be the same person as your primary beneficiary – i.e. your spouse – because the whole point is to have a plan if the primary beneficiary dies or is otherwise impaired.)

Something else to consider: Creating a trust for a minor child. This can help protect the child’s inheritance, provide flexibility in the distribution of funds, and minimize taxes and other financial risks.

(Not sure where to start? Trust & Will allows you to create a legal trust entirely online, and qualified Haven Term policyholders can do so at no cost thanks to our Haven Life Plus bonus rider, a suite of services designed to help you while you’re still alive.)

You can also leave instructions in your will specifying who will receive your life insurance benefits upon death by including a provision called a “testamentary trust.” Not sure where to start? Trust & Will allows you to make a legal will entirely online, and again, eligible Haven Term policyholders can do so at no cost.

Can you change beneficiaries later?

Yes, you can change the beneficiary on your life insurance as long as you are still alive. (Being dead makes it harder.)

What happens if you divorce? If you named your spouse as the beneficiary on your life insurance policy and are now divorcing, yes, you can (and should!) update your beneficiary designation, provided you are legally entitled to do so.

If you don’t, your ex-spouse can still receive the life insurance payout in the event of your death. (In some states, however, your ex will automatically be removed as a beneficiary on life insurance after a divorce is finalized.)

We should add that in some situations a divorced person may need to take out life insurance, with their ex-spouse as the beneficiary, as a way to cover their financial obligations in the event of their death. Suffice to say, divorce is complicated.

So you know who your beneficiary will be. Now then?

Having someone who depends on you can be a source of great stress, but also a source of great pride. It can give you a purpose.

Caring for that person, even after you’ve died, is a smart way to act on that sense of purpose. Get started by getting a free quote online for life insurance from Haven Life.

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