Choosing your life insurance beneficiary responsibly

Naming your beneficiary might count as one of the basic yet crucial task for you when you think of buying your life insurance policy. Since the beneficiary will be receiving the death benefits, it is all the more important to decide who is entitled to your trust. Litigations are common wherein spouses of the insured fight over the life insurance policy returns or in certain cases, the insurance company refuses to pay to the named beneficiary. To avoid such confusions in the future, when you may not be present, it is essential to know all about the beneficiary selection process.

Who can be named as beneficiary?

You can select individuals or organizations as your beneficiary, so that after your demise the benefits will be paid out to them. Usually the named beneficiary might be:

1. Any family member or relative of the insured i.e. mother, father, spouse, ex-spouse, son, daughter etc.
2. Any other individual.
3. A trust named after the insured person, which is looked after by an appointed trustee.
4. Any charity or organization.
5. The estate of the insured.

How many persons can be appointed as your beneficiary?

Beneficiaries are usually named according to the importance they have for the insured. You can name as many persons as beneficiaries as you want.

• Primary beneficiary - The person who is entitled to receive the death benefits in the first place. In his absence, the next named beneficiary will be considered.
• Secondary beneficiary - Also known as the contingent beneficiary. The secondary beneficiary receives the policy payouts only if the primary beneficiary dies before the insured.
• Final beneficiary - In rare cases, when both primary and secondary beneficiaries have passed away, the final named beneficiary receives the death benefits.

Who receives the death benefits if no-one is named as beneficiary?

If no person, organization or even a trust is appointed as a beneficiary to a life insurance policy, the decision about the policy proceeds passes away to the court. Usually, if there is no designated beneficiary, the proceeds go over to the estate of the insured. The owner of the estate consequently receives the death benefits as a part of the estate. However, in such cases the proceeds will be subject to the estate taxes. Again, if the beneficiary dies and no one else is named as beneficiary, then the proceeds from the life insurance policy are given out as the beneficiary’s estate.

How can you choose your beneficiary?

Choosing the beneficiary to your life insurance policy is a completely personal decision However, you should be cautious while choosing who’ll be entitled to receive the death benefits from your policy. While choosing your beneficiary, you may consider:

• Who all are financially dependent on you?
• Will you be leaving debts after you die or have a mortgage to pay off?
• Who’ll bear the funeral and other expenses after your death?
• Have your child completed his/her education?

One must choose the beneficiary to his/her life insurance policy carefully. A fiscally prudent person is a much sensible choice than one who spends recklessly.

Can beneficiaries be changed?

Yes, most insurers allow the policyholder to change the beneficiary to his/her life insurance policy. In fact it is advisable to update your policy at regular intervals, since one’s life, his/her needs and the relations keep on changing with the passage of time. The insured person must also inform his beneficiaries that what they are entitled to receive from his life insurance policy, and where to look for it. Failure to do so might result in a lot of difficulty for the beneficiary, since searching for a lost policy is time consuming. Don’t you want your loved ones to receive the much needed financial assistance from the policy as soon as possible?