A beneficiary is an individual you assign to receive the proceeds from a life insurance policy. What does this mean? Life insurance pays a death benefit at the time of your death. The policy names a specific person to receive those funds. You choose who this is. But, who you select needs to be a personal decision you make wisely. Remember, there is generally no rule here as to who you must choose. It is a decision only you can make. Who should you choose?
Who Is on Your Policy?
Most life insurance policies require you to list a beneficiary as soon as you obtain the policy. However, you can change this at any time. You can verify who is on your policy by contacting your agent. No one has the legal right to change this aside from you. Be sure you verify with your agent what your wishes are.
Who Should You List?
This is a personal decision. In many cases, a spouse is the first person on the list. However, some people want the funds equally split between their children. Sometimes, there is a non-relative listed. It is up to you to choose the party you wish to receive these funds. Consider a few factors before making this decision.
#1: Who you name receives all of the funds. They can then use these funds in any way they would like to. If you list a person’s name, this gives that person the ability to use those funds in any way desired. For example, if you write down your first child’s name and hope they takes care of the siblings, there is no legal obligation for this.
#2: You can name a trust. A trust is a legal entity in itself. You can establish rules for the trust. For example, you name the person in charge of the trust. This person must follow your legal wishes in terms of using those funds. Use your will or an estate plan to outline those goals. This is a good way to use the funds from your policy to achieve specific goals.
#3: You can change this person at any time. Do so when there is a change in your family makeup or when you need to change something due to relationship changes.
Some limits may exist on who you can name as a beneficiary. For example, you likely can't leave coverage directly to a minor. You might have to leave funds to a trust which will benefit the child, instead.
Always work with your life insurance agent to manage your policy. He or she can offer information about how to improve your policy to ensure it meets your goals.
Also Read: How Much Life Insurance Coverage is Enough?