Making the decision to purchase life insurance is often driven by the desire to provide benefits to the people in your life, a business, or another entity. Choosing your policy’s beneficiary is an important step of the life insurance process. “We work with beneficiaries everyday who are grateful for one of their loved ones’ final gifts,” says Associate Vice President of Claims Shelli Hopley. “It’s so important to make sure your beneficiary is up-to-date.” There are several things you’ll want to keep in mind before making your selection, including policy rules and state laws. Here are eight questions to help you choose your life insurance beneficiary.
You may purchase life insurance for a variety of reasons, including helping to cover funeral expenses, paying off debt, providing financial security for your loved ones, or leaving money to a company or business so they can continue in your absence. You may also like to leave money for your child’s education or make sure the inheritance and estate taxes are covered on any assets your heirs receive. When choosing your beneficiary, think about the goals you would like to accomplish with your policy.
When selecting your beneficiary, you have some other options beyond your immediate family. Additional examples of beneficiaries include:
The life insurance company will request certain details regarding the beneficiary you choose, including full name, Social Security number or tax id number, date of birth, address, phone number, and the nature of the person’s relationship to you. The next step will be deciding how your death benefit will be distributed. If you have multiple beneficiaries, it’s a good idea to seek help from legal counsel or a financial advisor with the process.
Your state may have certain laws about beneficiaries, so it’s a good idea to do some research or reach out to your financial professional for guidance. Some states, for example, require you to name your spouse as the primary beneficiary. If you wish to designate someone else, he or she will be required to sign a waiver to provide permission.
There are a couple important things to consider if you have your children in mind as your beneficiaries. If they are still minors when you pass away, they may not be eligible to receive the funds until they reach the age of majority. If they need your death benefit to help cover living expenses, this delay could lead to unnecessary financial hardship. There are a couple of ways to ensure your children can receive immediate access to your assets:
If a minor is the beneficiary on your policy, a court-appointed legal guardian may be designated to oversee the death benefit. Since this process can often be lengthy and complex, a lawyer can help you navigate the steps to ensure everything is set up properly.
If you wish to leave money to your children, setting up a life insurance trust allows you to name a trustee who will oversee the funds and distribute the money to your children. It’s a good idea to speak with a lawyer who can help assist with this process.
Most commonly the death benefit is paid out to the estate if a life insurance policy has no beneficiary listed. However, most life insurance companies will not issue a policy without a named beneficiary. In the event that all your beneficiaries pass away before you, your insurer may issue the death benefit to your estate and a court will decide how to handle the funds.
As you experience life events like marriage, a new baby, or divorce, the need to review and revise your beneficiaries may come up. If these events arise, your financial professional can help make any updates. He or she will also typically meet with you annually to review your policy to make sure your beneficiaries are up to date and your coverage amount still meets your needs.
Oftentimes, your life insurance policy asks you to name a secondary beneficiary, which is the person or organization that would be your second choice to receive the death benefit. In the instance that your primary beneficiary can’t be located, dies before you, or refuses the proceeds at the time of your death, then the death benefit will go to this designated person or entity.
In almost all cases, your life insurance beneficiary designations will supersede your will. Since the death benefit is paid directly to your beneficiaries, it doesn’t go through your will or the probate process. This is why having life insurance coverage can be a valuable way to provide financial support to your loved ones or business. Reading a will can often take months, whereas life insurance claims are typically paid out once your beneficiary submits a claim.
You likely have someone in mind when you make the decision to purchase life insurance. Whether it’s your loved ones, a business, or a charity, benefits from your policy can have a lasting impact. Discuss your goals with your financial professional when purchasing coverage and be sure to reach out following any important life events if you need to update your beneficiaries or have questions about how your circumstances may affect your coverage.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
Neither North American nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.