Naming A Beneficiary
Once you’ve made the decision that you need life insurance and have done a needs analysis to figure out how much cover you need, there are still a few important decisions that need to be made.
One of these decisions is to figure out who to name as the beneficiary for the life insurance policy. This may seem straightforward to some people, but let’s look at some things you should consider.
The first thing that you should ask yourself is – what is the purpose of the life insurance policy? For example, if you have taken out a life insurance policy as a way to help your family pay off a mortgage or look after other financial issues/obligations after you are gone then your spouse is probably the best option. If you own a business and the policy was taken out on you as a key employee, make the business the beneficiary.
Making sure that the proceeds of the policy land in the hands of the person or entity that can look after your plans should be foremost on your list. If you don’t have someone to leave the money to, you can always select your estate as the beneficiary and change it at a later date.
Did you know that you can split up the proceeds of a life insurance policy? This is another consideration that should be kept in mind. You are able to divvy up (split up) the death benefit of a life insurance policy among many different beneficiaries if you would like to. If your plan was to pay off some debts, provide some supplementary income for your family and support your favorite charity, you can look after this by splitting up the beneficiary designations. Actually name the charity as beneficiary for the dollar amount that you want to donate. Life insurance policies are very flexible and this ensures that your wishes are followed.
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Contingent (Secondary) Beneficiaries
You should also have a contingency plan. Often people set up life insurance policies with their spouse or partner as their beneficiary. This makes sense if something happens to you on your own, but what happens if there is a common disaster that leads to both you AND your beneficiary passing away at the same time? Make sure that if supporting your family is the goal that you have a back up plan. Naming contingent or secondary beneficiaries is your way of ensuring that even if your original beneficiary isn’t around, the money still lands in the right hands.
On Going Review & Updating
Finally, make sure that you keep your beneficiary designations up to date. Changes in your relationship status do not automatically change your beneficiary on a life insurance policy. If your mother was your beneficiary and you have since gotten married, your mother is STILL your beneficiary. The same is true if your spouse is your beneficiari and your marriage beaks up. Your now ex-spouse is still the beneficiary on your life insurance policy.
A life insurance company will pay the funds to the last person that you told them to. If you don’t keep things up to date, the money from your life insurance policy may land somewhere you don’t want it to.
Remember that the beneficiary that you designate is who the insurance company needs to pay the benefit to. You won’t be around to clarify anything so make sure that you leave clear instructions as to where the money should go.
If you are just purchasing a life insurance and policy and have questions regarding naming a beneficiary, do not hesitate to contact us. You can even contact us with questions regarding an existing policy. We are here to help in any way that we can.