Upon applying for a life insurance policy, one of the things you need to think about is your beneficiary. This is the person or persons who will receive a death benefit in the event of your demise.
Naturally, no one likes to think about dying. However, a life insurance policy gives you a peace of mind that your family will be taken care of should you pass away. So, how do you choose a life insurance beneficiary? Let’s discuss more below!
The Challenge of Choosing a Beneficiary
You can designate one or more people as a beneficiary on your life insurance policy. And choosing your beneficiary/beneficiaries can be challenging for many. The decision is ultimately up to you and, in order to make the best decision, here’s some helpful information.
There are a few terms to be familiar with related to beneficiaries. Some key ones are…
- Primary Beneficiary – this is the first person who will receive the policy’s benefits in the event of your death.
- Contingent Beneficiaries – these are the people who will receive the benefits if the primary beneficiary predeceases. Or if the primary beneficiary is unavailable to accept the money.
- Revocable vs. Irrevocable Beneficiaries – irrevocable beneficiaries can’t be taken out of your policy. Their names are on there forever. On the other hand, revocable beneficiaries can be changed by the policyholder at any time.
Tips for Choosing the Right Beneficiary
Here are a few tips to help you choose your policy beneficiary.
Always think why you are purchasing the life insurance in the first place.
What is the purpose of this life insurance policy? What drove you to purchase one? If your answer is to provide financial security for your family, then your spouse or your children may be the best option. Keep in mind however, that minors are not allowed to legally manage their own money. So there are several steps you need to take when naming a minor as a beneficiary.
Consider all your options – There are several options aside from your spouse or your kids. You can choose to designate anyone or anything as a beneficiary. For instance, you can name a trustee, a charity, your estate, and etc.
Have a backup or contingent beneficiary.
Keep your beneficiary details updated – Always update your life insurance policy every time something significant in your life happens. For instance, if you have more kids, or if you remarried, you need to update your beneficiaries.
Be specific – We cannot stress this enough! Remember to name your beneficiaries specifically in your life insurance policy.
