People buy life insurance for a variety of reasons but, by far, the number one reason is to provide financial care for your loved ones in the event of your untimely death. Anyone currently depending on your income who would be negatively impacted should that income be cut off deserves to be protected by your taking out a life insurance policy. Life insurance has become an important cornerstone in the sound financial plan of many families.
An important part of the life insurance process is choosing your life insurance beneficiary. This is the person, persons, entity or entities designated to receive your policy’s death benefit after your passing. Failure to designate a beneficiary will cause the death benefit to go to your estate, leaving it in the hands of the probate court to determine its disposition. Benefits will also go into probate if your named beneficiary’s death precedes your own.
Tips to Choosing Your Life Insurance Beneficiary
You should choose your life insurance beneficiary or beneficiaries as soon as possible after taking out your life insurance coverage. Here are some tips to help in making this choice and to avoid making any of the common mistakes in choosing.
- First, when choosing a beneficiary, you need to be aware of your various options. You can choose a person or two or more persons. In the case of multiple beneficiaries, you can split the benefit evenly among them or decide specifically how the money is divided between them. You may also designate a trustee of a trust you’ve established, a non-profit organization, a charity or let the funds go to your estate.
- Consider your purpose for taking out insurance in choosing your beneficiary. If it’s to provide financially for your family, your spouse is probably the best choice. If you want the funds to go toward the continuation of your company, your business partner may be the logical recipient.
- Keep your beneficiary choice(s) up to date. If your beneficiary precedes you in death, a new one should be appointed ASAP. If you named your mother when younger but subsequently got married, you must change your designation for the proceeds to go to your spouse.
- Be specific when naming beneficiaries. If you designate your children to receive equal shares and one dies before you, specify if funds should be divided among remaining beneficiaries or a share should go to the diseased offspring’s heirs.