HOW TO CHOOSE A LIFE INSURANCE BENEFICIARY
Think about it this way, your life insurance is really your safety net. If you live with your partner, would they still be able to pay bills or a mortgage without your income? Similarly, if you provide support to your parents, how would they find finances challenging without you around? Would they be responsible for taking on any of your debt?
To better understand what a beneficiary is, a beneficiary is a person who will receive the corresponding payout from a life insurance policy if something bad happens to you, or if you die.
The proceeds from the said payout can be used to help pay for financial needs that come with death, such as funeral arrangements and other end-of-life expenses, along with day-to-day bills like the mortgage and childcare.
One substantial reason people purchase a life insurance policy is for peace of mind, knowing that life insurance protection is in place in the event of your death.
Who you name as a beneficiary is unique to your own circumstances and preference. You can name two or more people as beneficiaries. You can also name a contingent beneficiary, who could receive the death benefit if something happened to the primary beneficiary. If you don’t know who to chose as a beneficiary. Read below some factors that you can choose from in choosing a life insurance beneficiary:
1. Keep the purpose of the policy in mind
The reasons why you’re buying life insurance should be because of your corresponding reasons. Do you want to provide financially for your family after you’re gone? If so, your spouse might be your best choice. If you want your company to prosper even after your gone, a good option might be your business partner.
2. Know your options
When choosing a beneficiary, there are more options than your spouse or kids. Generally, you can designate any one or more of the following examples as a beneficiary:
- One person
- The trustee of a trust you’ve established
- A non-profit or charity
3. Have a Backup
On your policy, the primary beneficiary is the person or entity you select to receive the life insurance proceeds upon your death. However, if your primary beneficiary can’t be located, refuses the proceeds, or is deceased at the time of your death, then a secondary (or contingent) beneficiary becomes the recipient. Make sure you follow the same advice for selecting a secondary beneficiary as you would for choosing the primary one.
4. Keep it up-to-date
One of the most common oversights with a life insurance policy is not keeping the beneficiaries up-to-date. Say you’re single and name your mother as the primary beneficiary, but later on, you get married. If you didn’t update the beneficiary on your policy, then the proceeds will still go to your mother.
5. Be specific
In addition to keeping your beneficiaries current, remember to be specific when you name them. If you name “my children” as beneficiaries and one of them dies before you, do you want the other children to get the entire benefit or the deceased child’s heirs to get their parent’s share?