A beneficiary is required to be named for every life insurance policy. By definition, a beneficiary is simply one who gets the proceeds of the life insurance policy in the event of the unforeseen or inevitable.
Your benficairy(ies) can be:
- A person
- Several People
- A trust
- A charity
- An Estate
Here are a few helpful tips and basic things to understand when naming a life insurance beneficiary:
You can name more than one beneficiary: It is possible to name more than one beneficiary. Depending on your preference, you can decide to name one, two or more beneficiaries. When your beneficiaries are more than one, you’ll be asked how much percentage of the proceeds should go out to each beneficiary. For example, you could designate 50% to a spouse, and 25% each for your children. You determine what percentage goes to each beneficiary.
Remember to name a second beneficiary: Think of this as a backup beneficiary. The second beneficiary receives the life insurance proceeds if the primary beneficiary is no longer alive when the payout is being made.
Use Specific Names: It’s best to use the appropriate names of beneficiaries to give clear and direct descriptions of whom you’re referring to. Avoid using generic terms like my children, wife, or mother to prevent confusion and accelerate the payout process.
Inform your beneficiaries about the policy: Your beneficiaries should be aware of your life insurance policy in case they need to file for a claim when necessary. This will also aid the payout process if necessary.
Review your beneficiaries frequently: You should carry out an annual policy review. This is advised because you’re likely to revisit your insurance policy after major life events like a marriage, birth, divorce or death.
You may want to use the following tips while considering naming a beneficiary.
Think about making provisions for a minor: Making provisions is one of the major reasons many people buy life insurance. Some people name a living parent or partner as their beneficiary, with the understanding that the proceeds will aid in covering children related needs. It’s also advisable to name a trustworthy custodian as beneficiary or set up a trust fund with the help of a lawyer to manage and distribute funds to take care of your minor. Also not that it’s impossible to name a child as beneficiary. The law prohibits anyone below the age of 18 or 21 years depending on the law where you stay.
Avoid Making your Estate beneficiary: Making your beneficiary could be a bad idea due to the long and costly authenticating process called probate. It’s a better idea to name a person, people or body as your life insurance beneficiary.
Seek help for special situations: If you’d like a guide to walk you through naming your beneficiary, you can turn to your financial advisor, insurance agent or lawyer for proper guidance.
Overall, it’s important to seek help with naming beneficiaries and everything concerning life insurance by contacting licensed insurance personnel or financial advisors who can walk you through the process.