Choosing the Right Life Insurance Beneficiary

Your life insurance beneficiary is the person who receives the payout of the policy. You may select anyone who has an insurable interest in your life to be your life insurance beneficiary, and can change the policy if you change your mind. Before you select the beneficiary of your life insurance policy, you should know your options and limitations.

TIP: In order to have an insurable interest the life insurance beneficiary must rely on the insured in some financial or support capacity. Frequently they would be dependents, such as a spouse or children, who would suffer a loss if the insured were to die, but you can name anyone you choose to be the beneficiary regardless of whether or not they are related.

Types of Life Insurance Beneficiaries

Before you name your life insurance beneficiary, you need to determine what type you want them to be:

• Revocable Beneficiary: If you name someone as a revocable beneficiary, the policy owner can change the beneficiary at any time. This makes it easy in case of marriage or divorce to make changes in the future.
• Irrevocable Beneficiary: If you name someone as an irrevocable life insurance beneficiary, the policy owner is unable to change the decision without the beneficiary’s consent. If the person you names as irrevocable beneficiary refuses to consent to the change, there is nothing the policy owner can do.
• Contingent Beneficiary: If you name someone as a contingent beneficiary, they would collect only when the primary life insurance beneficiary dies. An example of that would be if someone named their mother as their beneficiary and their 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.
• Estate as Beneficiary: You could also make your estate the beneficiary, although this is not usually a good idea because of possible adverse tax consequences. The estate could be levied hard with taxes and it could make the death proceeds available to any creditors.

TIP: If you wish to leave money to handle estate taxes, name your executor as your life insurance beneficiary and leave instruction that the money be uses for estate tax purposes.

Minor Children as Life Insurance Beneficiaries

There are cases where you might want to make a minor child your life insurance beneficiary. It could be your own child or a grandchild. If you intend to leave your benefits to a child, it might be preferable to have the insurance proceeds paid to a person who you trust will use the money for the child’s benefit. If the amount of money is substantial, you should consider having a lawyer set up a trust which could be administered by a financial institution’s trust department or an independent company that administers trust. You would name a person as an administrator of the trust. This will safe guard the money to be used for the child’s benefit in accordance with your wishes. If you want to set up a trust, you should get the assistance of an experienced estate planning attorney before you take action.

Choosing a Funeral Home as Beneficiary

Sometimes, the funeral home will suggest making them the beneficiary of a life insurance policy. Designating the funeral home as your beneficiary may not be in your best interest because doing so removes the ability to control the expenses charged by the funeral home. Making a responsible person your beneficiary will allow them to carry out your wishes and control the expense of your end of life planning.

TIPS: Appoint someone as a person to pay your final expense and leave them as the beneficiary or leave a percentage of the death benefit to them for that purpose.

There are many ways to go about controlling how your death benefit is dispersed, controlled and handled after your death. If you have any questions about what to consider when naming your beneficiary do not hesitate to ask an experienced agent. Once you have decided on your beneficiary, begin shopping and comparing life insurance quotes to find the best policy for you. To get started, take advantage of the Free Advice quote center today.

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Case Studies: Choosing the Right Life Insurance Beneficiary

Case Study 1: Minor Children as Life Insurance Beneficiaries

In this case study, Mark wanted to ensure that his young children would be financially supported in the event of his untimely death. He chose to make his minor children the beneficiaries of his life insurance policy. To protect the funds and ensure they were used for the children’s benefit, Mark consulted an experienced estate planning attorney who helped set up a trust administered by a trusted financial institution.

Case Study 2: Designating a Responsible Person for Funeral Expenses

Linda wanted to have control over her funeral expenses and ensure her wishes were carried out. Instead of designating a funeral home as the beneficiary of her life insurance policy, she appointed a responsible person who would handle her final expenses. This allowed her to have more control over the expenses and ensured her end-of-life planning was carried out according to her wishes.

Case Study 3: Considering Insurable Interest and Naming a Beneficiary

Sarah had a close friend who had been a significant part of her life and relied on her for support. Although not a family member, Sarah decided to name her friend as the beneficiary of her life insurance policy. She understood that the key requirement was an insurable interest, where the beneficiary relied on the insured in a financial or support capacity.