When buying a life insurance policy, you must choose a beneficiary. This is the person (or persons) to whom the insurance company pays benefits if you die. Naming a life insurance policyholder is an important decision to make. Consider the following tips to help you choose the right beneficiary for your life insurance funds.
Think of all your options
You can name everyone you like as your beneficiary. It does not have to be your spouse or your children. Your designated beneficiary may be your property, the trustee of a trust you establish, a non-profit organization, a company or other legal entity, an individual or two or more persons, with death benefits divided between those you specify. Trust can be the best option if you want to support young children through your life insurance benefits. Our agent can advise you on the pros and cons of the various options.
You can not take income from life insurance. If you buy a policy, there must be someone or something you want to support after you are gone. If the purpose is to support your family, the best beneficiary can be your spouse or trustee for a family trust that you establish. If you have built a business that you want to continue after your death, you can name your partner or company as your beneficiary.
Have a contingency plan
Life insurance is designed to protect those you leave behind should something happen to you. But life is uncertain, and something can happen to a recipient as well. Be sure to name one or more conditional beneficiaries who will receive your death benefits if your primary recipient is deceased, unable to locate or refuses income.
Be specific when naming beneficiaries
Do not name "my spouse" or "my children" as beneficiaries in a life insurance policy. List them individually and specifically by their full names. If you have more than one child and want to name them as beneficiaries, be sure to indicate where the benefits go if one of your children dies before you. Would all the death benefits go to your surviving children, or would the deceased child's share go to his or her children? . If you mention a minor child as a beneficiary and the child has not reached the majority age at the time of your death, the court may need to appoint a guardian to administer the funds. You can avoid this situation by setting up a trust and naming a trustee to get the proceeds for the benefit of the child.
Review and Update Your Policy Regularly
There can be many reasons why you may want to change your life insurance policyholder over time. For example, you may have been married or divorced or had a child. A person you mentioned as a beneficiary may be deceased. If you review your policy regularly, you can ensure that your death benefits go where you want them to go.