Death is something most people don’t like talking about, but it is imminent and has to be discussed to help secure the future of your loved ones. This is why choosing a life insurance beneficiary is important and has to be given serious thought. It can be challenging to pin down the one person who should end up as the insurance policy beneficiary, but that is exactly why you are reading this. Let’s look at how you can designate a life insurance beneficiary and if you can choose a minor:
Choosing an Insurance Policy Beneficiary
A life insurance beneficiary, in the case of life insurance, is the person who will receive a lump sum amount as a death benefit in the event of death. This person is designated by you as the insurance beneficiary while buying an insurance policy. Anyone can be named the beneficiary, be it a person or a trust. The individual can be your father, mother, spouse, child, relative or friend. But it is recommended to write a will if the beneficiary is not a family member to make the nomination effective and the claim proceedings smooth. However, it is necessary to consider who should be the ultimate beneficiary and receive the death benefit.
Assigning a Minor as the Beneficiary
It is very natural for you to designate your child as the life insurance beneficiary. But if you pass away before your child has become 18 years of age, the death benefit will be given to the guardian or the person who has custody of your child. After he/she comes of age, the claim money will then be given to the child.
Claiming Death Benefit
To claim the death benefit if you are the life insurance policy beneficiary, you will have to send a claim intimation form to the insurance company. The form will ask for your personal details and also the person who has passed away. After you submit the form successfully, documents like a death certificate, proof of you being the life insurance beneficiary, a copy of the insurance policy, etc., will be requested. The insurance company will then verify the documents and settle the claim.
How to choose a life insurance beneficiary
Choosing an insurance beneficiary is a highly personal decision that is influenced by your values and financial situation. Your beneficiary can be any person or entity of your choosing, such as a spouse, kid, trust, or charity.
Spouse:
Consider how losing your income would affect your husband or wife financially if you died. Are they going to be able to make ends meet? Life insurance proceeds can be used to cover bills such as your mortgage, long-term debt, and even burial fees. Keep in mind that in some states, naming someone else as the life insurance beneficiary of your life insurance requires the permission of your spouse.
Child:
Are your children dependent upon you? When you die, the life insurance benefits may be utilised to assist pay for your children’s future college educations. However, minors (defined as those under the age of 18 or 21, depending on the state) cannot be listed as direct beneficiaries. Instead, you might set up a trust in the child’s name or appoint an adult custodian for the cash. This trust or adult caretaker can then be listed as the policy’s beneficiary.
Charity:
You can name a charity as the life insurance beneficiary of your life insurance policy. If you have a favourite cause or charitable organisation, you can “gift” the benefit of your policy to it after you die.
Multiple beneficiaries:
You can decide that your benefit be shared in thirds, for example, between two children and a surviving spouse. If you name numerous insurance beneficiaries, you must state how much or what proportion of the death benefit each should receive. The number of beneficiaries you can choose from your insurance policy may be limited.
If no life insurance beneficiary is named, most life insurance plans name a default beneficiary. The default beneficiary is usually your estate, but it’s a good idea to check with your agent to see who the default insurance beneficiary is on your policy.
Extended family:
While married people usually identify each other as insurance beneficiaries, unmarried persons might name anyone who is related to them or who may rely on them financially.
You may even be able to name a non-married partner or close friend. However, in some states, unrelated beneficiaries are required to have a financial link with you (i.e. share rent or living expenses).
Your business:
You can name your company as an insurance beneficiary, or you and your business partners can name each other as beneficiaries. If you were to die, your partner could afford to buy out your half of the company, or your insurance money may support your business while your heirs hunt for a new owner.
How to change a beneficiary
What is the difference between revocable and irrevocable life insurance beneficiaries?
Bottom Line
Though naming an insurance beneficiary can be challenging, it becomes vital if something were to happen to you in the future. But now that you are well aware of choosing a recipient for the death benefit and how a claim is made, you can pick the right person as the life insurance beneficiary and educate them.
