You might think after you've determined how much insurance coverage you need and the type of life insurance policy that's right for you picking a beneficiary is a snap. It is, in fact, possibly the most difficult decision you may make regarding your life insurance policy. A beneficiary is the person (or persons) you name (within the limited of your life insurance policy) who will receive any death benefits from the policy. There are many options you have and a few limitations regarding who you may be able to pick.
Some states require you to choose a beneficiary with some
stake in your passing, be it a dependent child, spouse or other relative. Other
state laws have no such rule. But you can also name your estate as the
beneficiary of your policy, at which time any death benefit is split among your
other assets as you've stated in your will. One problem, however, with naming
your estate as beneficiary is the proceeds may not be exempt from any
creditors, who can then lay claim to their portion of the sum; a named
beneficiary is exempt from creditors' claims in most cases.
There are also different types of beneficiaries. Revocable
beneficiaries can be changed whenever you wish; irrevocable beneficiaries can't
be changed without their consent. Changing beneficiaries is as simple as
requesting a beneficiary designation form from your insurance provider, listing
the names of the changes you want, signing and dating the form. You may also
name as many beneficiaries as you wish, depending on the terms and formatting
of the policy, making them a primary beneficiary or a contingent, or secondary,
who is only entitled to the policy proceeds if they survive you and the
designated primary. There is no legal limit to the number of beneficiaries you
name but you must state exactly how the proceeds are to be divided among them
when you die. Percentages are probably the best way to do this, particularly if
you have any interest or dividend adjustments on the policy which would alter
the face value and, subsequently, the final benefit amount. While the value of
the policy changes, the values you've designated in percentages allow for
distribution of the funds as you wish.
It's important you name both beneficiaries, primary and
contingent, so any death benefit doesn't pass to your estate and then into
probate. Any named beneficiary receives the death benefit almost immediately,
avoiding costly probate fees. Naming a child a beneficiary of your policy is
fine but you must also appoint a guardian, or use a trust, to prevent the
probate court from appointing a guardian for you. Any changes you make in
beneficiaries can be limited by divorce or settlement agreements, depending on
the circumstances and terms.
Choosing someone as the designated beneficiary for your life
insurance policy is as important, if not more so, as determining the exact
amount of coverage you need. Always be sure and review your beneficiaries
annually, or at major life events (marriage, divorce, childbirth) to keep your
policy up to date with your needs and circumstances.
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”
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