Choose the Life Insurance Beneficiary

The life insurance beneficiary is the person or institution that receives the proceeds of the policy after the policyholder passes away. The owner of a life insurance can choose anyone he or she wants as the beneficiary.

There are two types of beneficiaries, primary and secondary (contingent). The primary beneficiary is entitled to the proceeds until the insured passes away. The secondary life insurance beneficiary is entitled to the proceeds if the primary beneficiary dies. Sometimes a contract might stipulate that if the proceeds are paid over time to a primary beneficiary that passes away before receiving the entire sum, the remaining sum will be paid to the contingent.

The insurance benefits can be received by a specific person, someone who the policyholder knew, or by a group of individuals, for instance the children. Designating classes of individuals can cause complications and legal problems. If the children are named as beneficiary, a clause should stipulate if you refer to the lawful children, children from a former spouse or adopted children. If they are minors you must find out if the insurer will allow a minor or the legal guardian to receive the proceeds. Designating a custodian under the Uniform Transfers to Minors Act to represent the child is a viable option.

Life insurance quotes vary from person to person, and so does the benefit. If you want to make sure the investment you worked so hard for is in good hands, consider establishing an Irrevocable Life Insurance Trust, or ILIT. The trust owns your policies and can be named as the primary life insurance beneficiary. This way you can remove the value of the insurance proceeds and reduce estate taxes. The difference between a Revocable and an Irrevocable account is that an irrevocable beneficiary cannot be changed without the consent of that beneficiary.

If you are married and don’t have any tax problems, you can name your spouse as the primary beneficiary so the cash can be used immediately. The contingent usually is the Revocable Living Trust, but it can also be the primary beneficiary, so the proceeds pass into the “B trust” and are protected from lawsuits, a new spouse and creditors. If you have a taxable estate, name your Revocable Living Trust as the primary beneficiary so it is proper used.

Single people often don’t know who to appoint as the life insurance beneficiary. Consider naming your Revocable Living Trust as the primary beneficiary so that all of your secondary beneficiaries are covered. If a primary beneficiary of the trust predeceases you, the benefits will be managed according to the trust agreement. If you have a taxable estate and you name individuals as direct beneficiaries, they will have the option to use the money for something else.