Plan For Tomorrow | Tips for choosing a life insurance beneficiary
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Tips for choosing a life insurance beneficiary

Monday 14 September 2020 | Reading Time: 6 minutes

 

Choosing a beneficiary for your life insurance policy is a decision that might not be as easy as you think. A beneficiary receives assets if you die while the policy is still active. But deciding who gets your money isn’t always just a matter of selecting a person. Your policy rules and state laws may affect or even restrict your choices. So, when deciding who your life insurance beneficiary should be, it’s important to make sure you are familiar with your policy and any regulations it’s subject to. Here are a few suggestions for determining how to select the right beneficiary.

Understand your life insurance policy

Typically, a life insurance policy provides financial security for loved ones after a person dies. There may be other reasons as well, such as a company or business that you would like to continue in your absence. It’s also possible that you want your life insurance benefits to help support your child’s education or that the money could be used to cover funeral expenses. Whatever the reason, it’s a good idea to do what you can to make sure you understand your policy type and the details regarding beneficiaries. Try to do the best you can to review your policy and if you have a life insurance agent, stay in contact with him or her.

Consider your beneficiary options

There are options beyond your immediate family when it comes to choosing a beneficiary. Some examples of beneficiaries include:

  • A single person
  • Two or more people
  • A trust you’ve established
  • A non-profit group or charity

Once you’ve determined who you’d like to be your beneficiary, be sure to get as much specific information about that person as possible – 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 – so your life insurance company can easily locate him or her.

When you’ve decided on who will receive your death benefit, the next step is to figure out how they 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.

Select a back-up beneficiary

There is a possibility that your primary beneficiary might die before you, can’t be located, or refuses the proceeds at the time of your death. By naming a secondary beneficiary you can ensure your death benefit passes directly to that person.

Review your beneficiary choices regularly

Major events like marriage, having a child, and getting a divorce are just a few things that can affect who you might want as your beneficiary. It’s a good idea to review your beneficiary designations on your life insurance policy every year or so to make sure the person or persons that you want to receive the death benefit are set up to do so. Your life changes and so do the lives of your loved ones, a periodic policy review can take into account events at every stage.

Be aware of what will happen if you name a minor as a beneficiary

If you die while your children are still minors, they may not be eligible to receive the funds until they reach the age of majority. This delay can be detrimental if they need your death benefit for living expenses. There are a couple of ways to help ensure your children can have immediate access to your assets:

Establish a trust

Trusts are a good solution for leaving money to your children. You can set up a life insurance trust and name a trustee to oversee the funds and distribute the money to your children, or whomever you wish. There are costs involved with setting up a trust – talk to a lawyer for assistance.

Guardianship

If a minor is the beneficiary on your policy, a court-appointed legal guardian may be designated to oversee the death benefit. This process can be lengthy and complex, so it can be a good idea to talk to a lawyer before you start.

Don’t forget your will

Your life insurance beneficiary designations will supersede the will in almost every case. To ensure your wishes are honored, make sure your will matches your life insurance policy. You can’t use your will to modify your life insurance policy, so if you named someone as a beneficiary of your life insurance, that person will receive your death benefit.

Get familiar with your state laws

Your state may have laws about beneficiaries. For example, some states, like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin have community property laws, and three other states — Alaska, South Dakota, and Tennessee — have elective community property laws. These laws give couples equal ownership of their joint property. If you want to designate someone besides your spouse as a beneficiary, your wife or husband will need to sign a waiver. Research the laws in your state or talk to a financial advisor about the rules your beneficiary choices may be subject to.

When in doubt meet with a professional

If you need help, seek information and advice from an appropriate legal or tax professional. If you find you need to make changes, you may need to contact your North American agent.


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.

B12-NA-9-20

Updated: 8/2021