Who Gets a Life Insurance Payout?
If you die, your life insurance payout will be paid directly to the beneficiary (or beneficiaries) listed on your policy. Once you’ve chosen the policy that’s right for you, your next decision will be to designate exactly who it is you want to name as your beneficiary.
What Is a Life Insurance Beneficiary?
The person(s) or entity who will receive the death benefit payout from your life insurance policy if something happens to you is called the beneficiary. When you buy life insurance, one of the first things you’ll do is indicate your beneficiary on the application.*
Who Can You Name to Receive Your Insurance Benefit?
Your policy beneficiary can be a person or entity, or you can designate that your life insurance payout be paid to your own estate (although this can have certain disadvantages, such as the payout being subject to estate taxes). Some states require that your beneficiary be related to you, or at least have an insurable interest in your life, while others have no such restrictions.
Depending on how your state laws dictate the distribution of life insurance benefits, you may also be able to name a charitable or nonprofit organization as your beneficiary. Another option is to set up an irrevocable life insurance trust and designate it as your policy’s primary beneficiary. This can give you more control over your policy and can help you reduce estate taxes.
Primary and Contingent Policy Beneficiaries
You can name a primary beneficiary and a contingent, or secondary, beneficiary. The primary beneficiary is who your policy proceeds will go to first if you die. The contingent beneficiary receives the life insurance payout if the primary beneficiary dies before, or at the same time, as you. If you name a contingent beneficiary, you can help reduce the chances of your life insurance payout going to your estate.
Naming Multiple Beneficiaries
You may name multiple beneficiaries. In fact, with the exception of some company restrictions, you can name as many beneficiaries as you want. If you do so, you must also designate how the proceeds should be divided between your named beneficiaries.
Can You Change Your Life Insurance Beneficiary?
Your policy beneficiary can either be irrevocable or revocable. A revocable beneficiary can be changed at any time, but once named, an irrevocable beneficiary cannot be changed unless you get their written consent. Unless one or more of your beneficiaries is irrevocable, you typically need only to fill out a beneficiary designation form to make a change.
You should review and revise your beneficiary choices following major life events such as marriage, the birth of a child, a career change or the death of a beneficiary. Some people choose to review their beneficiaries annually.
Designating the Proper Beneficiary Is Important
Designating beneficiaries is one of the most important steps you’ll take in the process of buying a life insurance policy. Make sure you’re well-informed of your options and aware of restrictions in your state regarding who can be named beneficiary.
Connect with a licensed insurance agent today at1-855-303-4640 to find the right policy for you.
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Sources:
Everplans: https://www.everplans.com/articles/all-you-need-to-know-about-life-insurance
the balance: https://www.thebalance.com/irrevocable-life-insurance-trust-ilit-estate-planning-3505379
360 Degrees of Financial Literacy: http://www.360financialliteracy.org/Topics/Insurance/Life-Insurance/Designating-a-Beneficiary-for-Life-Insurance
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.
