Choosing a beneficiary is a very personal decision the outcome of which is dependent on your values and overall financial situation. The Insurance Information Institute states that your beneficiary can be anybody or anything you choose, including your spouse, child, trust, business, or charity.
Consider how losing your income would effect your spouse's financial situation if you died. Would he or she be able to support themselves? Benefits from life insurance can be used to pay for things like your mortgage, long-term debt, and of course, funeral expenditures. According to nolo.com, some states demand your spouse's approval to name someone else as your life insurance beneficiary so be sure to keep that in mind.
Do you have any children that are financially reliant on you? When you pass away, the proceeds from your life insurance policy may be utilized to assist paying for their college educations. However, the American Institute of Certified Public Accountants warns that minors (defined as those under the age of 18 or 21, depending on the state) cannot be listed as direct beneficiaries (AICPA). Instead, you might set up a trust in the child's name or assign the cash to an adult custodian. The AICPA suggests that the policy's beneficiary be listed as this trust or adult custodian.
You can name a charity as the beneficiary of your life insurance policy also if you wish. If you have a favorite cause or charitable organization, you can "gift" the proceeds from your life insurance policy to it after you die.
Further, you can divide your benefit in thirds amongst two children and a surviving spouse, for example. You must specify the amount or percentage of the death benefit that each beneficiary should receive if you choose multiple beneficiaries. According to the Insurance Information Institute, your insurance policy may limit the number of beneficiaries you can choose.
If you don't name a beneficiary, most life insurance policies will name a default beneficiary for you. Your estate is usually the default beneficiary, but it's a good idea to check with your agent to see who your policy's default beneficiary is. It is best to make sure all to begin with that you have named the beneficiary you want, as well as a contingent beneficiary, just in case something happens to you and your primary beneficiary at the same time. The death benefit would automatically default to the contingent beneficiary named.
Married people usually choose each other as their insurance beneficiaries, but single people can choose anyone who is related to them or who might be financially dependent on them.
You may also be able to name a friend or partner with whom you are not married. Unrelated beneficiaries may, however, be required to have a financial relationship with you (i.e. sharing living expenses or rent). That's what is known as an "insurable interest.”
You can name your business as your beneficiary, or you and your business partners can name each other as beneficiaries. If something happened to you, your partner could buy out your share of the company, or your insurance proceeds might be used to fund the company while your heirs look for a new owner.
As you see, there are many different ways you can choose your beneficiary. It is always wise, to do annual reviews of your policy to be sure that who you originally named as beneficiary is still the person and/or organization you still want to be there.
For more information regarding beneficiaries, please feel free to write or call us today. Thanks for your time.