When you purchase a life insurance policy, you must name a beneficiary who will receive the money if you die. It’s not as simple as it seems; life changes and legal requirements can impact a beneficiary selection. Since you won’t be around to distribute the benefits, it is best to prepare in advance to ensure your favorite person gets them.
Choose The Beneficiary Carefully
It is important to designate the life policy of the person whom your demise will most impact. For example, a spouse or children may need the payout to run their lives. You can also name family members or a business partner. This will help the company stay afloat before the business associate looks for your replacement.
When choosing a beneficiary, you have two options: one is revocable, allowing the policyholder to make changes. The other is irrevocable, meaning you cannot remove the person from the policy.
Plan How To Distribute The Benefits
You can name multiple beneficiaries for your policy. However, you must decide how to divide the proceeds. One option is per capita distribution, which divides the policy equally among beneficiaries regardless of the number of their heirs. If one of your children dies before you, the family will not receive the benefits.
The other option is the “per-stripes” distribution. The method distributes benefits equally among all family branches, allowing you to cater to your grandchildren if their parents die. The deceased children will receive an equal share as their parents. You can also skip your child and name a grandchild.
Inform The Beneficiary
Let the beneficiary know you choose them and how much they’ll expect. Also, inform your family members of your decisions. This will let them know you care, and the news will not catch them by surprise after your demise.
Organize for Minor Protection
Always prepare ahead if your beneficiary is a minor. According to state laws, a minor is a child below 18 or 21. A minor may not manage the money well, so designate the benefits to a trusted adult beneficiary. Most insurers allow such an arrangement. If you name a minor, the court may appoint a guardian to manage the cash, which is a lengthy process.
Do Regular Policy Reviews
Life insurance is a living document, so you need to keep reviewing it while you’re alive. You can change the beneficiaries after a divorce, marriage, or adding children. Your preferences may change if you get ill and one child steps in to care for you while the other sits on the bench. If you have Hepatitis B life insurance, fill out a request form and ensure you review it at least yearly.
Get A Contingent Beneficiary
Life is not constant, people come and go, so it’s best to name a contingent beneficiary. These may be people or entities, such as charity organizations, that would receive the benefits if the primary beneficiary dies. This is usually applicable if the spouse is the primary beneficiary and both of you are aging together.
Consider Beneficiaries’ Circumstances
At times, naming someone as a beneficiary may deny them some privileges. The blind, aged, or disabled get supplemental security income from the government. They could lose their eligibility for government benefits if they receive the life insurance payout. So, always consider the beneficiary’s circumstances before adding them.
Make Sure The Policy Matches the Will
People make mistakes by assuming they leave a person a life insurance policy in their will and forgetting to designate the beneficiary in the life insurance contract. The policy beneficiary must appear on the contract even if the will says otherwise.
If you have a life insurance policy, you should designate it to someone who deserves it. It may be for your family, estate, or burial expenses. A beneficiary should be a trusted person who will help you achieve your goals, so choose a beneficiary wisely and inform all your dependents.