A life insurance policy helps make certain those goals you
or your beneficiaries have come to fruition even when you pass away. In the
policy, you name a specific person, persons or others as a beneficiary or
beneficiaries of the policy so they can pay for the things you felt were
necessary or important after you've died. But what rights do the beneficiaries
actually have?
According to life insurance law a person or persons named as
a beneficiary must suffer some form of financial loss if you die. This is
called an insurable interest and can include family, business partners, life
partners and the like. A life insurance company can't accept any person or
entity without an insurable interest as a beneficiary. After the policy is
issued, however, you can change the beneficiary to anyone you want to, even the
local mail carrier. And, unlike a will, the named beneficiary cannot be
contested by anyone. The insurance company has a legal obligation to pay them.
You can also choose to divide the proceeds of the policy by percentages or
equally if there are several beneficiaries you've named. This can include any
surviving family or heirs of said beneficiaries should they also pass away
before the proceeds are released.
Naming a beneficiary also helps avoid state inheritance or
estate taxes in some states. Some states don't include the life insurance
proceeds going to a named beneficiary as taxable inheritance, even though the
funds are still subject to the federal estate tax. Naming one or several
primary and secondary beneficiaries is another contingency. Without multiple or
secondary named beneficiaries the proceeds go to the estate and become an asset
of probate, creating a time-delay before they can legally be distributed.
It's important to word the policy correctly if naming
children as beneficiaries. Include any unborn children so future family members
aren't accidentally left out of life insurance benefits. Also, do not name a
trusted adult family member as a custodian of the child's benefits and hope
they will use the funds in the best interest of a minor. Many times in that
situation, the funds simply become theirs to use for whatever they wish instead
of protecting yours or the child's interests. Fortunately, many states will
not release the funds if the child or
children are under the age of majority but you can allow you to name a
custodian on the provision the court approves any use of the beneficiary funds.
This allows the money to be available while the children are young and helps
direct the use of the money as you had planned.
Finally, a spendthrift clause may automatically be written
into the life insurance policy. The wording used helps to prevent any creditors
from legally attaching the beneficiary proceeds. Any proceeds are also
protected from attachment by debtors' creditors. The proceeds will then go
directly to the intended person or persons, no matter how much the insured owes
to creditors or others.
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”
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