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What Is A Life Insurance Beneficiary?
Article 2 of 7 in What to Know About Life Insurance Beneficiaries
The life insurance beneficiary is the person or persons who will receive the money from your policy should you die, and will be responsible for carrying out any plans you had for the policy. Who you name the life insurance policy beneficiary depends on whom you can trust and how you want the payout of your plan to be managed. As you choose your life insurance beneficiary, consider some of the following points:
Life Insurance Beneficiary Designation
You can have one or several beneficiaries on a life insurance policy designated in a variety of ways:
- Revocable Beneficiary: If you name someone as a revocable beneficiary, the policy owner can change the beneficiary at any time. This makes it easy to make changes in the future in case of marriage or divorce.
- Irrevocable Beneficiary: If you name someone as an irrevocable life insurance beneficiary, the policy owner cannot change the beneficiary without the beneficiary's consent. If the person you name as irrevocable beneficiary refuses to consent to the change, the policy owner can do nothing. Irrevocable beneficiaries may be useful if you have a terminal illness or a disability and are concerned about someone acting on your behalf and making changes if you become incapacitiated.
- Contingent Beneficiary: If you name someone as a contingent beneficiary, that person would collect only when the primary life insurance beneficiary dies. An example would be if someone named a mother as beneficiary and a brother as the contingent beneficiary. If your mother was not living at the time of your death, then your brother would collect the death benefit. More complex arrangements with regards to life insurance beneficiaries are possible. The first beneficiary or the contingent beneficiary could, in fact, be more than one person. For example, the several siblings could be first beneficiary and the contingent beneficiary could be a number of nieces and nephews. Also, it is possible to assign percentages to each of the beneficiaries or contingent beneficiaries (for example, 25% to Peter, 50% to Joan and 25% to Sam) as long as the percentages total 100%.
You also could make your estate the beneficiary, although this usually may not be a good idea because of possible adverse tax consequences. If the estate is heavily levied with taxes, the death proceeds would be available to any creditors. If you wish to leave money for someone to handle estate taxes, name that person as your life insurance policy's beneficiary and leave instruction that the money be used for estate tax purposes. Speak with an experienced estate planning attorney if you have any questions or need assistance with estate planning.
TIP: If you have any questions about what type of life insurance beneficiary is right for you, ask an experienced life insurance agent.
Changing a Beneficiary of a Life Insurance Policy
You can change the beneficiary of a life insurance policy without much difficulty. The process requires a few forms with your life insurance company. If you have had any life changing events--marriage, divorce, the birth of a child, or the death of a spouse-you should review your beneficiaries to make sure that they are up to date and in accordance with your plans and wishes.
TIP: You cannot change an irrevocable life insurance beneficiary without that person's permission. Think twice before making a life insurance beneficiary irrevocable.
Life Insurance with No Beneficiary
A life insurance policy with no beneficiary should be paid to the estate of the policy holder. There are two significant consequences:
- This typically means that the life insurance benefits need to go through the probate process before any heirs or loved ones can access the payout. Having no beneficiary on a life insurance policy may not cost loved ones the benefits of the policy, but it will delay payout due to probate.
- The person who receives the life insurance payout may not be the intended beneficiary. Because the benefits have go through the probate process, the laws of probate which relative receives the life insurance benefits.
A life insurance policy with no beneficiary is possible, but it complicates and delays the payment of benefits. Make sure you select a beneficiary of your life insurance policy when you purchase one.
When you have chosen a beneficiary and are ready to shop for life insurance you will need to find the right policy for you and your loved ones. To contact a life insurance agent to get a needs analysis review and a quote on life insurance, click here and Free Advice can help
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