What is a life insurance beneficiary and what do they do? Read on to find out more, and learn how to choose the best beneficiary for your policy.
What is a Beneficiary?
In the world of insurance, a life insurance beneficiary is the person, people, or organization receiving your death benefit in the event that you die while your policy is active. This recipient can be a spouse, child, friend, or charity.
Who Can be a Beneficiary?
Generally speaking, no one can tell you who your beneficiary should be. A beneficiary can be a person, charity, business, or trust. In the event the beneficiary is a person, you can choose a spouse, relative, friend, or anyone else you happen to know. You may also choose more than one beneficiary. However, you’ll want to pay particular attention to certain regulations if you live in a common property state like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. In these states, there might be insurance beneficiary rules that require your spouse to waive their rights as beneficiary before you name another person or organization as your life insurance beneficiary.
5 Tips for Choosing a Life Insurance Beneficiary
Choosing a beneficiary doesn’t have to be difficult. If you follow these five tips, you’ll be on the right track to selecting the perfect life insurance beneficiary for you.
1. Keep the purpose of the policy in mind
The reasons you have for purchasing life insurance will usually be a pretty good guide when it comes to choosing your beneficiary. For example, if you want to protect your family, consider choosing your spouse or child. If you want to preserve your business, consider choosing your business partner.
2. Know your options
A lot of people think they can only choose a spouse or children as their beneficiary, but that isn’t entirely true. Get to know your options, you may find the right beneficiary outside your immediate circle.
3. Have a beneficiary backup
Even if your beneficiary knows they’re in your life insurance policy, you may have trouble reaching them when needed. Make sure your attorney has their information, and if your beneficiary can’t be contacted at your time of death, make sure you have a backup beneficiary ready, ensuring your death benefits go to the right place.
4. Keep your beneficiaries up-to-date
One of the biggest oversights with life insurance policies is not keeping the beneficiaries up to date. Be sure to keep your insurance provider and attorney updated with your beneficiary’s most recent contact information and mailing address, make sure to inform your attorney and insurance provider any time it changes.
5. Avoid designating a minor as a beneficiary
You know those state regulations we talked about earlier? They can make matters infinitely more difficult when designating a minor as a beneficiary. In fact, some states don’t allow minors to receive the full amount of benefits from life insurance proceeds – or any proceeds at all. One way to avoid this is by setting up a trust for your child or designating an adult to oversee the distribution of funds from the death benefit to your child.
A beneficiary can be a person, charity, business, or trust.
Understanding who can be a life insurance beneficiary and how to choose one can help make one of the most stressful aspects of your life insurance journey much easier. For more information on beneficiary rules and regulations in your state, contact a licensed insurance agent.