How to Choose a Beneficiary for Life Insurance

Choosing a beneficiary for life insurance is a very important decision when you get an insurance policy. A beneficiary of insurance is the person that will be entitled to benefits after the owner of the insurance policy (the one who purchases insurance) dies.

For instance, you can designate anyone from your family as the beneficiary of life insurance. There are different things involved in designating a beneficiary as you will be asked to choose primary beneficiary, secondary beneficiary and then the final beneficiary. As a rule, the owner of the insurance has control over designating a beneficiary, but if they do not exercise their right, state’s law will jump in and designate someone from your family.

Instructions

  • 1

    Take the age of beneficiary into consideration because under-age children/minors (if you designate them as beneficiary) can put you in a great deal of trouble as the policy might not transfer death benefits to them easily. There are many legal aspects in transferring assets (benefits) to children and you must have prior approval by court.

    Keeping in view the legal issues, most insurance policies discourage naming children or minors as beneficiary. Surely, you do not want the death benefits to be held by the court, putting family in further trouble. However, there are ways you can designate a child as contingent beneficiary.

  • 2

    Review your beneficiary designations from time to time. If you still haven’t decided to purchase a life insurance policy, you should allow yourself enough time to review the potential beneficiary designations on occasions such as deaths, births, divorces and weddings. There is a strong possibility that someone (from your family) who you had previously decided to designate as the primary beneficiary of the policy might not be the perfect choice under the current circumstances.

    Divorces, separations, family reunions, and deaths can hurt your plans. So, take the time to review the beneficiary designations from time to time and come up with the decision that will help your family reap benefits after your death.

  • 3

    Review the ability of beneficiary to manage assets. Most of the times the primary beneficiary may find it confusing to manage direct transfers that come in the form of death benefits. So it is advised to set up a trust under the beneficiary’s name. When you set up a trust, all the transfers (proceeds) are managed by the trustee, making things easier for the beneficiary.

  • 4

    Do not forget to designate a contingent beneficiary, one who is entitled to the proceeds/death benefits if the primary beneficiary dies.

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