Have you decided who should be your life insurance beneficiary? The decision can become more complicated than many people expect, when you think through the different legal and financial ramifications. Below is a good breakdown of a few important terms within the world of life insurance to help you start figuring things out for your own situation.
Primary and Contingent Life Insurance Beneficiaries
How do you designate a life insurance beneficiary legally? There are two basic types of life insurance beneficiaries:
- Primary beneficiary: The primary beneficiary is the person (or persons) who will receive the proceeds of the life insurance policy when the insured person dies. However, the primary beneficiary will not receive any proceeds if he or she dies before the death of the named insured.
- Contingent beneficiary: This is also known as the secondary beneficiary. The contingent beneficiary will not receive any of the life insurance proceeds if the primary beneficiary is still alive when the insured person dies. The contingent beneficiary is only entitled to receive proceeds if the primary beneficiary dies before the named insured.
Many professionals in the industry feel that the best or safest approach is to name a primary beneficiary and a contingent beneficiary on a life insurance policy.
Revocable and Irrevocable Life Insurance Beneficiaries
There are two classes of beneficiaries known as revocable and irrevocable beneficiaries.
- Revocable beneficiaries: The owner of the life insurance policy has the right to change the beneficiary designation at any time without the consent of the previously named beneficiary.
- Irrevocable beneficiaries: The owner of the life insurance policy cannot change the designation of the beneficiary without the consent of the original beneficiary.
Which is the better choice? Most experts consider that the simplest way is to go is with a revocable beneficiary option. There are a number of potentially complicated legal issues that can occur if you opt to go with an irrevocable beneficiary.
– via www.trustedchoice.com
What If You Have Children?
Being a parent means that your financial and insurance decisions are inherently more complicated. Because, at the end of the day, you’re making these decisions both for yourself and for someone else – or many someone else’s! Here are three different options when it comes to naming your children as beneficiaries of your life insurance policy.
Life insurance can, for a modest investment, help families pay off bills and keep going after a parent dies. Buying a policy isn’t terribly complicated (in most cases). But figuring out your beneficiaries can be.
Here’s a quick rundown of common beneficiary designations that might not be so desirable:
1. Naming your minor child as the beneficiary
This tends to be the default on insurance policies because it feels simple but the result is anything but. Minors cannot, by law, control their own property — and that includes money. If your minor children are the direct beneficiary of a life insurance policy, it will be necessary, in most instances, to name a guardian to manage the proceeds even if the child’s other parent is still alive. This can be time-consuming and costly.
2. Naming your just-barely-not-a minor child as the beneficiary
Assuming that your child is no longer a minor, there are no legal impediments to naming your child as a beneficiary but there are some practical ones. Chief among them: Young adults may not be prepared for the responsibility of taking care of a lump sum of money. Even worse? There might be other folks in the child’s life who might not have their best interest at heart whispering in their ears.
3. Naming an adult as the beneficiary with direction to “take care” of your children
It might be tempting to name an adult as the beneficiary and have a side agreement for the adult to take care of the child with the life insurance proceeds. There are real dangers, however, with this kind of arrangement since the adult is under no legal obligation to use the proceeds for the benefit of the child.
– via SheKnows
Who is your current life insurance beneficiary?