While the process of obtaining insurance can be stressful, the peace of mind you get knowing that you’re prepared for the future makes it worth it. Now we all know that when purchasing a life insurance policy, there are many big decisions that are included. One of the most crucial decisions to make when purchasing life insurance is deciding who will be your beneficiaries.
Here are some things you should know to help make the decision easier:
What Is A Beneficiary?
A beneficiary of a life insurance policy is the person who will gain financial benefits from your policy after you pass away. You can name as many people as you want, or you can name a trust, your estate, or a charity as your beneficiaries. There are also different kinds of beneficiaries. First, there are primary beneficiaries. Primary beneficiaries are the ones who receive the benefits first after your death. If your primary beneficiary dies before you, a secondary beneficiary will receive your death benefit. You many also name a final beneficiary if both your primary and secondary beneficiaries pass away before you.
Since this is a huge decision to make, picking the people to receive benefits can be a tough choice, so here are some things to keep in mind before selecting your beneficiaries.
How To List Your Children As Beneficiaries
When deciding who should receive your death benefit, there are some things to keep in mind. While your child may seem like the most obvious choice to pick as your beneficiary, you may want to look into the details. If your children are under the age of 18, (or 21 depending on the policy) they may not be able to directly receive money from your life insurance company. In this scenario, a legal guardian would be appointed by the court, which will be timely and expensive. Not to worry, there are some ways around this. To make this process easier, you can set up a trust fund to benefit the child, or list the beneficiary of the policy as a trustworthy adult who will use it on behalf of the child. Choosing your child as a beneficiary can be a great way to support their future in the case of your untimely death, but just make sure that you understand all the details of the policy so you can set it up correctly.
How To List Your Spouse As The Beneficiary
A spouse is another common option to pick as your life insurance beneficiary. While this can be a sound choice, many people do not prepare for the worst-case scenario, which is the entire point of purchasing insurance. If you pick your spouse as your primary beneficiary, make sure that you add in a secondary beneficiary. In some circumstances, you spouse may die before you, or even with you in the case of an extreme accident. If your spouse is your only beneficiary and they are not living at the time of your death, then the money will go to your estate and be very hard for your heirs to receive. So play it safe, and name a secondary and final beneficiary.
What Are My Other Options For Beneficiaries?
If you do not have children or your spouse is already deceased, there are some other options to list as your beneficiaries. If you have a large extended family, you can pick family member who will outlive you, or family friends that you feel deserve the benefits. If you do not have a lot of family, another great option to list as your beneficiary is your favorite charity. The money that comes out of your death benefit can be donated to a good cause, and will be appreciated for long after your passing. This is a wonderful option to consider as a beneficiary for your life insurance policy.
Decide How To Distribute The Funds
During the process of deciding who your life insurance beneficiaries will be, make sure that you pay attention to all the details. If you have multiple beneficiaries, make sure you are clear when it comes to distribution of the benefits. There are two different ways to divvy up the funds. Per capita is when the money is divided evenly between the number of people. Per stirpes is when the funds are divided by the branches of the family. Make sure you see all of your options to decide what is best for your beneficiaries.
Tell Your Beneficiaries
One of the most frequent, yet avoidable mistakes made when picking your life insurance beneficiaries is keeping them a secret. After you pick your beneficiaries, make sure that they are aware of your decision. By having explicit intentions, your beneficiaries will know what to do in the case of your death. This will prevent the drama within the family, and ensure that the benefits will be received by your loved ones.
By considering these tips when picking your life insurance beneficiaries, you can ensure that your policy benefits will be left in good hands.