Time for any little word play. The word beneficiary has its own roots in the Latin benefactum, meaning good deed. And that is a good way to consider naming someone, or someones, or something, as a beneficiary on your term life insurance policy. To put it simply, an existence insurance beneficiary may be the individual who will receive a policy payout (called a death benefit) should you die with coverage in place. It's really a person, multiple persons, a trust, or even an organization – or some combination based on your requirements.
But what distinguishes a primary beneficiary from all others (like a contingent beneficiary)? And how would you choose that primary beneficiary, anyway? These are important questions – arguably the most important questions you'll face when buying life insurance. In the end, why are you getting the policy to begin with? To help financially protect those you love just in case you're not around to do this yourself. (That's so good deed we were talking about earlier.)
With all that in your mind, this is what to consider, and just what you should know, when selecting who to name as the primary beneficiary in your life insurance policy.
What is really a beneficiary?
Again, an existence insurance beneficiary is a person who will receive the payout from the policy should you die. The proceeds from the payout, known as a death benefit, can be used to help pay for the beneficiary's financial needs, both the ones that include death (funeral arrangements, burial expenses) and people who we have in daily life (mortgage payments, day care). Since you may not want to invest your financial eggs in a single person's basket, you are able to name two (or more) people as beneficiaries, outlining the proportion of the policy payout each would be given by the life span insurance provider.
What is a primary beneficiary, anyway?
A primary beneficiary is really a designated individual, chosen through the policyholder, who'd get the proceeds of the policy if they would die. When selecting a principal beneficiary, you are able to name a person or persons or perhaps a revocable trust (or living trust) or any other legal entity. Most importantly, the primary beneficiary may be the “first in line” to get the death benefit.
For some, designating two multiple beneficiaries – say, a spouse or domestic partner along with a parent – may make sense, especially if both could face financial hardship. For others, one primary life insurance coverage beneficiary, with a secondary beneficiary named, helps make the most sense. The latter is what we frequently see at Haven Life, where most customers name their partner as the sole primary beneficiary.
Keep in your mind that your primary beneficiary should be legally competent to accept the assets. This raises the question of whether it's possible to name minors as primary beneficiaries. The short answer is yes, as long as certain steps are taken – specifically, naming a guardian who'll oversee your trust to ensure your estate is executed according to your wishes.
Whomever you select, you'll want to be sure you notify your beneficiary (or beneficiaries) that you've designated them. This can ensure they know your wishes, and can act accordingly in case something happens for you. Also, remember that, with most life policies, you are able to change your beneficiary designation anytime.
What is a contingent beneficiary, and why would I want one?
A contingent beneficiary is who'd receive the death benefit if something became of the main beneficiary. After all, every day life is full of unexpected outcomes. Selecting a secondary beneficiary is really a prudent way to protect yourself you from the quantity of “what-if scenarios,” just like your primary beneficiary not alive at the time claims is created. It's common for policyholders to name their spouse or domestic partner because the primary beneficiary after which their children or their children's guardian because the contingent, for instance. That way, if anything happened to both mom and dad, the proceeds would go to the child/children or their guardian to handle.
Also, you know how we're always saying you want to make life insurance less hard at Haven Life? Listing a contingent beneficiary can make life less hard for that person. Basically, if something happens for you as well as your primary beneficiary, your death benefit could be paid to your estate should you hadn't named a contingent beneficiary. It could then be susceptible to distribution with the probate court which will cause a delay in disbursing money – a complicated situation for the loved during an already stressful time. (Note: If you have set up a living trust and plan to name it as the primary life insurance coverage beneficiary this may 't be a problem.)
And FYI: You can have more than one primary beneficiary and most one contingent beneficiary; you simply need to designate what percentage of your lifetime insurance proceeds you want to allocate to each of your primary beneficiaries. Haven Life, for example, permits as much as 10 primary beneficiaries and 10 contingent beneficiaries. And again, insurance companies will let you improve your beneficiary designation anytime.
Additional “just in case” scenarios where a contingent beneficiary would be needed:
- Primary beneficiary cannot be found
- Primary beneficiary refuses to accept the proceeds
- Primary beneficiary has predeceased the policyholder
How do I decide who to name my primary beneficiary?
For many people, they are buying a life insurance coverage simply because they have somebody in their mind who they want to financially protect – so frequently it is a simple choice of who to name as a beneficiary. At Haven Life, we frequently see individuals name their spouse as the primary beneficiary, however your situation might be different. Different exercises might be elderly relatives who you financially support, friends who're like family or even charitable organizations that have had an impact in your life.
What if I need to change my primary beneficiary designation?
It is important to examine your beneficiary designations every so often. This is especially true for those who have a significant life event such as marriage or divorce. In case your life circumstances dictate a general change in beneficiary designation, fear not. It is possible to change your beneficiary designation if needed. At Haven Life, this can be conveniently managed inside your account center online.
Can I have several primary beneficiary?
You can have more than one primary beneficiary; you simply need to designate what number of your lifetime insurance proceeds you need to allocate to every of your primary beneficiaries. Haven Life, for example, permits as much as 10 primary beneficiaries and 10 contingent beneficiaries. No matter how many primary beneficiaries you have, the total percentage allocated must equal 100%. The way you divide that 100% can be you, the policyholder.
What if my primary beneficiary can't be found?
If your primary beneficiary can't be found when the time comes to get a payout, the payout will go for your contingent beneficiary, for those who have one. A contingent beneficiary steps in as the primary beneficiary if the primary beneficiary is no longer in a position to receive the benefit. Overall, for this reason it's important to not only name a principal beneficiary and contingent beneficiary, but also to review and update the beneficiary and the or her contact details periodically.
Protect most of your beneficiary with life insurance
At no more the day, life insurance allows us to leave a financial legacy to the family members as we have left. Properly selecting, naming and notifying a beneficiary is the greatest way to help be sure that your family members will receive the death benefit in a time-sensitive manner, at any given time when they'll need that peace of mind most.