Leaving something behind for your family when you pass away is something we all want to do to protect the financial futures of those we care for most. It’s for this reason that your beneficiary is one of the most important factors of your life insurance plan.
But how should you go about choosing your beneficiary? As simple as the decision seems to be it actually can be more difficult than it sounds.
The process of naming a beneficiary typically requires a lot of consideration and often there are some important aspects of choosing a recipient that people are unaware of. Life and other circumstances can get in the way of making a decision so we’ve gathered some helpful tips to make the process easier on you.
Recognizing Your Options
It’s normal to leave an insurance benefit to a family member like a son, daughter, or spouse but there are other choices available to someone purchasing coverage. If you have children or grandchildren that are currently in school or have a home and family of their own, making them your beneficiary is most likely going to be your ideal choice. After all, protecting your loved ones and providing for them when you are gone is often the main purpose of buying life insurance.
But what if your family is already taken care of? In this case, making your beneficiary a local charity or hospital is a good option to consider if you are interested in leaving behind a legacy or simply want to support an organization that is close to your heart.
Check with a licensed professional insurance advisor to clear up any concerns you may have about beneficiaries. Insurance professionals help with making these important decisions by asking you the vital questions that will guide you to making the best decision for you and your loved ones.
Consistently Review Your Policy
Settling on your beneficiary when purchasing your policy is not the end of the process. Anything can happen throughout your life so it is very important to look through your policy and update your beneficiaries if need be.
Marriages, divorces, having children, and even death are all circumstances people face, including your beneficiaries. These life-changing moments (among many others) are times that you should be considering a change of beneficiaries. Perhaps you are no longer with your spouse, but he or she is listed as your beneficiary; in this instance, you should change your beneficiary to your children or another family member.
Always have a backup or secondary beneficiary in place to receive your planes benefit if your primary choice cannot for any reason.
If your initial beneficiary either refuses the funds or passes away the benefit will automatically move to your second choice. Without a contingent beneficiary, your plan’s benefit will go to your estate where the funds can be mismanaged and not given to the people you care for.
Continue to review and revise your secondary beneficiary just as you do with your primary one to make sure that the right people are benefiting from your coverage.
Last Wills and Insurance Policies
Ensuring that your final wishes are carried out properly means checking that your insurance policy is in line with what is written in your will. Designating someone as the recipient of your life insurance plan in your will isn’t enough to ensure they get your plan’s benefit, the choice must also be reflected in your policy’s contract.
What many people often don’t understand is that your will won’t supersede the decision of beneficiaries outlined in your life insurance policy. A life insurance policy is a contract and what is recorded and signed on that document will be enforced. Always make sure that your will and insurance beneficiaries are updated simultaneously to avoid any confusion and errors after you pass away.
Leaving Your Benefit to a Minor Child
Designating a younger child as your beneficiary is a mistake that is going leave them unable to receive your plan’s full benefit. Underage children are not eligible to receive the payout of a life insurance policy, even if they have been selected as the plan’s beneficiary.
Setting up a trust will protect the money you are leaving behind so it can go to the child you have chosen when they reach adulthood. Don’t forget to appoint a trustee to overlook the trust and ensure that it the money is being used correctly. A trustee can be family member or friend, but remember to talk with person beforehand to ensure that they are comfortable with the responsibility.
Without a trust, your plan’s benefit will not be handled to your exact wishes as a court will have to appoint someone to manage the funds. The process of assigning a guardian to overlook your plan’s benefit can be a lengthy procedure that can leave your final gift managed by someone you may not have wanted to be in charge.