The benefits of having a life insurance policy are significant and multiple.
In exchange for monthly or annual payments to a life insurance provider, your beneficiaries receive a pre-determined amount upon your death. Amounts can range from several thousand dollarsOr more.
So it is important. But it’s equally important to make sure your beneficiaries are properly chosen and added to your policy. There’s no practical point in setting up a comprehensive policy if you don’t have any beneficiaries – or have listed them incorrectly.
If you don’t have life insurance — or want to increase the coverage you have — now is a good time to act. Get started by getting a free price quote so you know exactly what to expect
3 Tips for Choosing a Life Insurance Beneficiary
Here are three smart steps to take when choosing (or adjusting) your life insurance beneficiary.
Get back to the basics
When you get insurance for a significant amount of money it can be tempting to list several people as beneficiaries – but pause before doing that. Go back to basics and remember the main reason for getting a plan in the first place.
Is this policy primarily to support your children after your death? Then they should be on top. If you want to leave it to your spouse for lost income in your absence, they should be listed first. Or, if you want the policy to be used to keep the family business going, adjust the beneficiaries accordingly.
In short: you don’t lose the primary reason for buying protection. List those people as beneficiaries.
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Don’t just make a list
When selecting your primary beneficiary, the above advice applies. But don’t list just one person. Financial advisors usually advise you to list contingent beneficiaries.
What is a contingent beneficiary? This is someone (or multiple people) who will receive the policy payout if the primary beneficiary is unavailable. Primary beneficiaries may be difficult to track down, may decline funding or may even die. So, make sure you have someone else to receive those funds. That’s okay if you have multiple contingent beneficiaries. You can assign parts of the policy as you see fit (as long as they are 100% combined).
If you want to leave the plan to your spouse, make them the primary beneficiary. And if you have children, list them as secondary beneficiaries. But be careful while listing minors.
Be careful when listing minors
You can list minors in your policy, but you should understand the potential implications.
If you die and your beneficiaries are not of legal age, they will endure a potentially difficult legal process to receive funds. Restrictions on how much money minors can access through a life insurance policy vary from state to state so the transfer won’t be as clean and simple as for adults. In some cases, the court may need to appoint a guardian to manage the fund.
Again, you don’t have to avoid enlisting minors but understand what can happen if you do. An adult you trust to manage the funds in your absence can be a safe bet to ensure your minor beneficiaries don’t have to fight for money.
When it comesand protection, recommendations are specific to your individual personal financial situation, preferences and goals. Keep this in mind when deciding on a plan that’s worth it to you.