You may have bought a life insurance policy or considered buying one in case your dependents couldn’t support themselves financially if you suddenly passed away. To make sure your loved ones are protected by the policy, it’s essential to name a beneficiary. The policy won’t pay out until you choose one as early as possible.
Naming a beneficiary is a quick and easy process, but it does involve several considerations like who needs your financial support and whether you should leave the money to them or trust another entity. Let’s dive right into the fine details so you can make an educated decision.
What is a beneficiary?
Beneficiaries are the individuals or organizations you name in legal documents to receive the proceeds from your investments or insurance policies. They can be either “primary” or “contingent,” depending on the circumstances.
The primary beneficiary of a life insurance policy is the person(s) designated to receive the death benefit in the event of the policyholder’s death. Most policies also let you designate a “secondary” or “contingent” beneficiary in case the primary beneficiary passes away at the same time as you or before. The death benefit is paid to the secondary beneficiaries if none of the primary beneficiaries are alive.
Who is a good candidate for a beneficiary?
Most people invest in a life insurance policy for the peace of mind that comes with knowing that their loved ones are being provided for in the case of their untimely. You can choose almost anyone to be a beneficiary, though there may be limitations based on the provider or where you live.
Family members
A natural candidate for a beneficiary is someone who stands to lose money due to your passing. There is typically no limit to the number of beneficiaries you can name so long as the combined percentages of the benefits equal 100%. Some people may appoint a responsible adult, like a spouse, to make decisions about monetary benefits to other family members or close friends.
Designating a minor as a beneficiary
Beneficiaries can include minors (those under the age of 18). But if you pass away while they are still minors, the money can go to whoever is legally responsible for their estate. Setting up a trust is another typical way to provide for a child’s needs. In fact, the trust itself can be designated as the recipient.
Regardless of your decision, it’s important to remember that young children may be prevented from accessing your assets or life insurance money until they reach legal age. If the beneficiaries are still minors at the payout time, a trust or custodial arrangement may be necessary to ensure that the money is used for their benefit. Talk to a reliable life insurance agent about the most suitable vehicle.
Recipients with disabilities or other long-term dependencies
An obvious choice for a beneficiary would be someone who will require ongoing financial assistance. However, doing so could disqualify them from receiving government benefits—perhaps depriving them of a large source of income.
One approach to ensure that a loved one with special needs receives your estate or life insurance payout in the event of your passing is to set up a special needs trust and name the trust as the recipient.
Assigning benefits to a charitable organization
A powerful way to leave a lasting legacy is to help others. Several people want to leave money to non-profit organizations that support important causes. You can designate a charity that you care deeply about to receive all or a portion of your estate or the proceeds from your life insurance policy.
Let us help you make the right choice
Choosing a beneficiary for your life insurance policy is a big decision that requires a lot of consideration. Choose your beneficiaries with care, and double-check their information regularly to ensure it’s up-to-date and correct. Make sure the beneficiaries are on board with your decision and know what to expect from the policy in the event of your untimely death.
Knowing that someone is looking out for your loved ones after you die is a huge burden lifted off your shoulders, and that’s what we’re here for. The experts at Franklin Life and Annuity can help you weigh your options and make a decision that works well for both your situation and budget. We offer top-notch purchasing life insurance and final expense insurance services by working with the most reliable insurance companies in Houston, TX.
Get in touch with us right away to request a quote or start discussing your options.