Beneficiaries of Life Insurance
If you’re considering the purchase of a life insurance policy, one of the most important decisions you will make is who will be the beneficiary.
Who is a Beneficiary of a Life Insurance Policy?
The beneficiary is the person to whom the proceeds of a life insurance policy are paid upon the insured’s death.
The owner of the life insurance policy chooses the person who will receive the death benefit from the life insurance. You can choose more than one person to be beneficiary.
Anyone can be named a life insurance beneficiary including relatives, non-relatives, pets, charities, corporations, trustees or partnerships.
A primary beneficiary is the first-named beneficiary, who must survive the death of the insured in order to collect the proceeds of the policy.
A contingent or secondary beneficiary will receive the proceeds if the primary beneficiary does not outlive the insured.
A revocable beneficiary (primary or secondary) can be changed by the policy owner at any time.
An irrevocable beneficiary (primary or secondary) can be changed by the policy owner only with the written permission of that beneficiary.
Naming an irrevocable beneficiary removes the policy from the estate of the insured, who thereby gives up incidences of ownership for estate tax purposes.
If a beneficiary is convicted of murdering the insured person, the beneficiary cannot collect the death benefit. The insured’s estate would receive the benefit.
What is a Beneficiary Clause in a Life Insurance Policy?
The beneficiary clause is a provision in a life insurance policy that permits the policy owner to name anyone as primary and secondary beneficiaries.
The policy owner may change the beneficiaries at any time by writing the insurance company and sending the policy for endorsement if that is requested.
How Much Does a Beneficiary Get from Life Insurance?
The beneficiary receives the amount you (the insured) apportion for that person to receive from the proceeds of the life insurance policy.
For example, you may have your spouse and two adult children as primary beneficiaries.
And, you may choose for your spouse to receive 50% of your life insurance benefits, while each of your two children receive 25% of the death benefits.
So, in the above example, if you had a $1,000,000 life insurance policy, your spouse would receive $500,000 upon your death, and your adult children would each receive $250,000.
How Can I Change the Beneficiary?
You can either call or write to the insurance company and request a Change of Beneficiary form be sent to you. Upon receiving the form, fill out the form and return it to the insurance company and they will make the change of beneficiary to your life insurance policy.
Can I Name a Child as Beneficiary?
Yes, you can but there must be a guardian appointed to handle your child’s money.
You may want to set up a trust to make sure someone you select is the guardian of your child’s trust and you can set up specific instructions on how the trust is to be managed.
Tips for Making Sure Your Life Insurance Benefits Your Children
If your intended beneficiary is a minor, it is a good idea to arrange the money to go into a trust until that child is about 25 years old.
While it is still in the trust, it can only be used for specific purposes you designate when you set it up the trust. No one else can use the money at all.
It’s usually a good idea not to appoint more than one person as trustee. This almost always leads to problems. A better way to ensure the trust is being run according to your wishes is to be very specific when you create the trust.
Also, make sure you are specific when you set the terms of the trust. You need to be clear about what a trustee can and cannot do with the life insurance money. If you don’t, even if the trustee is your choice, they may not be able to manage the trust the way you would have liked.
If you have a spouse and they would make a good trustee, specifically designate them as the trustee in advance. Remember, your marriage alone will not necessarily make your spouse the trustee of your child’s life insurance trust.
Keep in mind, unless you state the specific age your child will have access to managing his or her trust, the law states your child will have access at age 18.
If you are getting a divorce, or you are divorced, you may want to appoint someone other than your ex-spouse as guardian of your child’s trust.
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