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Saturday, 29 January 2022

What is a beneficiary?

 


A beneficiary is the person or entity named as the recipient of a life insurance policy's death benefit. You have the option to name:

  • One individual
  • two or more individuals
  • a trustee for a trust you've established
  • A charitable organization
  • Your inheritance
The death benefit will be paid to your estate if you don't choose a beneficiary.

Two “levels” of beneficiaries
Both "main" and "contingent" beneficiaries should be listed on your life insurance policy. If your primary beneficiary is found after your death, he or she receives the death benefits. If the principal beneficiary cannot be traced, the death payments are distributed to contingent beneficiaries. The death benefit will be given to your estate if no primary or contingent beneficiaries can be discovered.

You should identify beneficiaries as clearly as possible and include their social security numbers when identifying them. This will make it easier for the life insurance company to locate them, and it will reduce the likelihood of disagreements over death benefits. An ex-spouse could collect the death benefit if you write "wife [or husband] of the insured" without using a specific name. If you have specified specific children, however, any later-born or adopted children will not get the death benefit until the beneficiary designation is changed to include them.

You should explain how the benefits will be handled if one or more recipients cannot be discovered, in addition to designating beneficiaries. Assume you have two children and each one is named to get half of the death benefit. Do you want the other child to obtain the entire death benefit or the deceased child's heirs to get their portion if one of the children dies before you? If the death benefit is paid to your estate, the money may not be distributed for a long time, and the cost of probate may reduce the amount available to your heirs.

Choosing beneficiaries and keeping them up to date is a crucial element of having life insurance. The birth or adoption of a child, as well as marriage or divorce, can all have an impact on your initial decision. As new circumstances develop, review your beneficiary selection to ensure that your choice is still appropriate.

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