You might think after you’ve determined how much insurance coverage you need and the type of life insurance policy that’s right for you picking a beneficiary is a snap. It is, in fact, possibly the most difficult decision you may make regarding your life insurance policy. A beneficiary is the person (or persons) you name (within the limited of your life insurance policy) who will receive any death benefits from the policy. There are many options you have and a few limitations regarding who you may be able to pick.

As with any insurance, it is very important to keep paperwork and/or company name available to your beneficiaries when the time arises. It is as simple as registering on a life insurance database to guarantee this information will never get lost and become a lost life insurance policy.

Some states require you to choose a beneficiary with some stake in your passing, be it a dependent child, spouse or other relative. Other state laws have no such rule. But you can also name your estate as the beneficiary of your policy, at which time any death benefit is split among your other assets as you’ve stated in your will. One problem, however, with naming your estate as beneficiary is the proceeds may not be exempt from any creditors, who can then lay claim to their portion of the sum; a named beneficiary is exempt from creditors’ claims in most cases.

There are also different types of beneficiaries. Revocable beneficiaries can be changed whenever you wish; irrevocable beneficiaries can’t be changed without their consent. Changing beneficiaries is as simple as requesting a beneficiary designation form from your insurance provider, listing the names of the changes you want, signing and dating the form. You may also name as many beneficiaries as you wish, depending on the terms and formatting of the policy, making them a primary beneficiary or a contingent, or secondary, who is only entitled to the policy proceeds if they survive you and the designated primary. There is no legal limit to the number of beneficiaries you name but you must state exactly how the proceeds are to be divided among them when you die. Percentages are probably the best way to do this, particularly if you have any interest or dividend adjustments on the policy which would alter the face value and, subsequently, the final benefit amount. While the value of the policy changes, the values you’ve designated in percentages allow for distribution of the funds as you wish.

It’s important you name both beneficiaries, primary and contingent, so any death benefit doesn’t pass to your estate and then into probate. Any named beneficiary receives the death benefit almost immediately, avoiding costly probate fees. Naming a child a beneficiary of your policy is fine but you must also appoint a guardian, or use a trust, to prevent the probate court from appointing a guardian for you. Any changes you make in beneficiaries can be limited by divorce or settlement agreements, depending on the circumstances and terms.

Choosing someone as the designated beneficiary for your life insurance policy is as important, if not more so, as determining the exact amount of coverage you need. Always be sure and review your beneficiaries annually, or at major life events (marriage, divorce, childbirth) to keep your policy up to date with your needs and circumstances.

Until next time, Michael Hartmann

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