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What Is a Life Insurance Beneficiary?

Choosing a life insurance beneficiary is a way to make sure your family’s financial future is protected. As life goes on, circumstances may change. That’s why it's crucial to keep checking and possibly updating who you've chosen as a beneficiary.

Keep reading to learn more about what is a beneficiary and how to designate one, the duties and responsibilities of a life insurance beneficiary, and how to change or update a beneficiary of life insurance.

What is a beneficiary?

A life insurance beneficiary is the chosen individual or entity to receive policy benefits after the policyholder's passing. 

Types of beneficiaries

  • A primary beneficiary is a beneficiary of life insurance that is the first in line to receive the life insurance proceeds upon the insured person's passing.
  • A contingent beneficiary, also known as a secondary beneficiary, receives the proceeds if the primary life insurance beneficiary is unable to receive them.
  • A revocable life insurance beneficiary can be changed or revoked by the policyholder without requiring the consent of the beneficiary.

The importance of naming a beneficiary

There are several important reasons to name a life insurance beneficiary:

Clarity and intent: Designating a life insurance beneficiary makes it clear who receives the policy benefits, fulfilling the policyholder's wishes.

Financial protection: Being designated a beneficiary of life insurance offers financial security to the insured’s loved ones, ensuring they receive support after the policyholder's passing.

Avoiding probate: By bypassing probate, the proceeds reach the intended life insurance beneficiary promptly, avoiding potential delays and legal hurdles.

Tax efficiency: Being designated a life insurance beneficiary potentially minimizes tax burdens on a beneficiary of life insurance. Possibilities include benefits being tax-free, an avoidance of probate delays and exclusion from estate taxes.

Avoiding disputes: Clearly naming beneficiaries can help prevent disputes among family members or other interested parties, ensuring a smooth distribution of benefits.

Legally, naming a life insurance beneficiary provides protection, addressing specific marital rights and considerations outlined by state laws.

Failing to designate a life insurance beneficiary or keeping outdated information can lead to complex legal issues, causing delays or misallocation of benefits.

How to choose a beneficiary

When choosing a life insurance beneficiary, factors like relationship to the policyholder, financial dependency and long-term care needs should be weighed. 

Here are some individuals to consider when designating a beneficiary for a life insurance policy.

Naming individuals

Here are some individuals to consider when designating a beneficiary for a life insurance policy.

Partner/Spouse: Naming a partner or spouse as a life insurance beneficiary provides direct financial support after the insured's passing, offering possibly crucial stability.

Minors: Custodians or guardians play a pivotal role in managing and overseeing life insurance policy benefits until a minor reaches adulthood. They oversee the benefits to best ensure the minor's welfare, serving their best interests.

Naming multiple beneficiaries: It's crucial to specify each beneficiary's share or percentage to avoid conflicts, and that the intended distribution fulfills the policyholder's wishes.

Extended family: Naming an extended family member as a beneficiary of a life insurance policy secures a safety net for their future.

Communicating with family members about life insurance beneficiary decisions

When talking about life insurance beneficiaries with family, be empathetic and transparent. Explain your reasoning, and emphasize your goal of securing the financial future. Stay open to revisiting decisions as circumstances and family needs change.

Naming an entity

Naming a trust, charity or organization as a beneficiary of a life insurance policy can leave a lasting impact. It allows you to support causes important to you. Naming an entity as a beneficiary of life insurance can possibly ensure a lasting positive influence on the community.

By making a charity the beneficiary of a life insurance policy, you can make a much larger contribution than if you donated the cash equivalent of its premiums.

Changing or updating your beneficiary

How to update

Here's a list of steps to take for changing a life insurance policy's beneficiary:

  1. Review policy terms:

    Understand the specific procedures outlined in your policy for changing beneficiaries. It may require specific forms or actions.

  2. Obtain the necessary forms:

    Contact your insurance provider or visit their website to get the appropriate forms.

  3. Fill out forms accurately:

    Complete the forms with the new beneficiary's information accurately to avoid any confusion.

  4. Provide documentation, if required:

    Some policies might require supporting documentation, such as identification or a proof of relationship for new beneficiaries. 

  5. Sign and date the forms:

    Ensure all required signatures are provided and that the forms are dated correctly.

  6. Submit forms to the insurance company:

    Send the completed forms to your insurance company via mail, email or through their online portal, following their specified submission process.

  7. Confirm Receipt:

    After submitting the forms, follow up with the insurance company to confirm they received the documents and to inquire about the processing time frame.

  8. Keep records:

    Always maintain copies of all paperwork related to the life insurance beneficiary change for your records.

  9. Update your records:

    Once the change is confirmed, update your records to reflect the new life insurance beneficiary information.

Consider consulting with a financial advisor or your insurance provider for specific guidance tailored to your policy and circumstances.

When to update

Life events like marriage, divorce and births impact beneficiary choices. Marriage often leads to naming a new spouse as a primary beneficiary, ensuring their financial security. Updating beneficiaries during divorce prevents unintended outcomes, and a new birth may prompt designating a new family addition as a beneficiary, securing their financial future.

For a deeper understanding of how your life insurance policy should evolve with these milestones, explore our guide on life insurance at different stages.

Choosing a life insurance beneficiary safeguards your family's financial future. Regularly reviewing and updating this choice ensures intended recipients receive financial security and peace of mind.

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ALIC99524 Jan-26