People get life insurance for the financial safety of their loved ones. But who is the beneficiary in life insurance?
The owner of a life insurance policy has to choose a person who will get all the money after his death. This person is called a beneficiary.
This beneficiary can be anyone. Mostly, the person the policyholder trusts becomes the beneficiary. It can be your spouse, patients, siblings, or any close friend, and it can also be a trust, a charity, or an estate.
The beneficiary will get the death benefit if the policyholder dies while the policy is still in force,and all the other expenses like college fees, debts, etc.
What is a beneficiary?
A beneficiary is someone who is selected lawfully to get benefits from another person’s money or property. They usually receive these benefits as part of an estate.
They can become beneficiaries of a life insurance policy, a brokerage account, a retirement account, or other financial products if you want their property to be distributed according to your wishes after you pass away. Then it’s important to select your beneficiary on time.
Types of beneficiaries
While choosing the beneficiary, you have to keep this thing in your mind. There are 2 types of beneficiaries. One is primary, and the other is contingent.
The primary beneficiary will receive the death benefit after the policyholder dies, even though there are more people listed as beneficiaries. The primary beneficiary will receive all the death benefits.
A contingent beneficiary is also known as a secondary beneficiary. If the person who was listed as the primary beneficiary dies or can’t be found, then the contingent beneficiary will receive the death benefit. There can be one or more contingent beneficiaries. In that case, the policyholder has to make a will to divide equally among all the contingent beneficiaries.
You can name your children as contingent beneficiaries. If the primary beneficiary, your wife, dies before you, your children can receive the money. Suppose you want your money to pass on to your children. And if both the primary and contingent beneficiaries die, the money will go to the estate.
Tips for selecting a life insurance beneficiary
Choosing an heir for your life insurance is important. But whom to choose? Who will be the best person to be your beneficiary? Let me give you some tips. So that it will be easier for you to choose your beneficiary.
1. Keep the purpose of the policy in your mind:
While choosing the heir, you need to think about why you are paying for the policy. If you want to secure your family financially, you can name your partner as your heir. If you want your company to be secure, you can name your business partner as your heir.
2. Know your options:
You have to know how many people you can select as your beneficiaries. You can choose more than one person. In that case, you have to decide how the benefits will be divided among them.
3. Have a backup:
You have to make sure to keep your money safe for your loved ones. Suppose your primary beneficiary can’t be found or dies before you, then you need a backup beneficiary. Make sure to name a contingent beneficiary for backup. And use the same method for the contingent beneficiary too.
4. Keep it up to date:
Many people make this mistake. They don’t keep their policy up-to-date. When you are single, normally, you name your mother as your heir. You should make an update after your marriage. Or, when you are divorced, you need to make an update and delete the name of your partner.
5. Be specific:
Your wishes should be specific. Suppose you make your children your beneficiaries. But when one of them dies, what about their part? Do you want their heir to have their part? Or do you want your other children to have that part? You have to be specific about the part.
6. Don’t unwillingly disqualify your beneficiary from other benefits:
According to the Social Security Administration, those who are old, disabled, and receive SSI could potentially have their financial benefits decreased or suspended if their inheritance boosts their earnings. Think carefully and take the necessary steps before adding them as your beneficiary.
7. Don’t count on your will to override your beneficiary choice:
When making a will for the beneficiary, make sure that it fits your policy purpose when you make any update. Take your time and think carefully. Life insurance is a contract between you and the company, and it will occur as you make contact.
8. Be aware of the state laws:
You have to be aware of the state laws. Firstly, check with your independent Grange life agent to know everything in detail.
9. What will happen if you don’t choose a beneficiary?
If there isn’t any beneficiary, then the money will be provided to your estate, and the probate court will decide on the funds. This is a lengthy process. If you want your money to give to someone, make sure to select a beneficiary.
Can a beneficiary be removed from a life insurance policy?
Yes, it is possible to remove a beneficiary’s name from a life insurance policy. A court order will be needed for that. You can even replace a name. But if the policyholder dies, then it is impossible to change any name on the policy.
Who is the beneficiary in life insurance?A beneficiary is a person who is paid the death benefit after the policyholder dies. You should choose a beneficiary while filling up the form. You can choose anyone of your choosing.
If you don’t select a beneficiary, your money will not be provided to your family or the one you want to have the money. They can claim their money, but it’s a lengthy process and will cost a lot of money.
So, it’s a wise choice to select your beneficiary first so that your family or loved ones or the one you want to give you money can have it without facing any problems.