What is a life insurance beneficiary? Let’s say that you just put in your application with one of the best life insurance companies – at some point they’ll ask you to choose your beneficiary. You’ll need to select a “Primary” and possibly a “Contingent”. What are primary and contingent life insurance beneficiaries? Today, we’re going to give you everything you need to know about life insurance beneficiaries. We’ll go over and answer the most frequent questions we receive about life insurance beneficiaries so you can feel confident your policy is setup correctly.
Life Insurance Beneficiary Definition
A life insurance beneficiary is the entity or people you designate on your life insurance policy. This person or entity will get your death benefit.
There are two types of life insurance beneficiaries:
- Primary Beneficiary
- Contingent Beneficiary
Who is the primary beneficiary for life insurance?
The primary beneficiary of a life insurance policy is the person or entity who would be the very 1st in line to be paid the death benefit. You can name more than 1 primary beneficiary. You can also choose how much (the percentage) each primary beneficiary will receive.
What’s a life insurance contingent beneficiary?
A life insurance contingent beneficiary are the people or entities that get the death benefit if the primary beneficiaries are unable to. If you’re a contingent beneficiary, you will be the next in line to get the benefit after the primary beneficiary. In other words, if a primary beneficiary is not alive to get the benefit, the contingent beneficiary will collect.
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Who should be your beneficiary for life insurance?
When you buy a life insurance policy you need to name at least one beneficiary. How many beneficiaries for life insurance can you name? The simple answer is: You can name as many life insurance beneficiaries as you want.
You can name
- A single person
- Two or more people
- The trustee of a trust that you previously set up
- A charity of your choice
- An estate
Selecting your life insurance beneficiary
These are some of the main choices that you should consider for your life insurance beneficiary:
- Spouse: This is the most popular choice for a beneficiary for obvious reasons.
- Family: In addition to your spouse you may want other members of your family to be a beneficiary. You may provide financial support to other members of your family- not just your spouse. This could be your parents, siblings, domestic partner or children.
- Estate: Many choose their estate to be the beneficiary. Your Administrator or Executor will receive the life insurance proceeds. You must to some work before choosing your estate. You’ll have to create your last will and testament and make sure you don’t choose a specific person as the beneficiary of your policy.
- Charity: You can select a favorite charity as your beneficiary.
- Trusts: Similar to your Estate, you’ll need to set this up before choosing your trustee and naming your trust beneficiaries.
Should I name my child as a beneficiary?
This is a great question because most people want to have the death benefit remain in their immediate family. Usually the insured will select the spouse as the primary and maybe the children as the contingent beneficiaries. Sounds reasonable right?
Unfortunately, this can create a huge headache and things can go wrong quickly if your child is a minor.
Most states will not allow children under the age of 18 to be the recipient of a life insurance death benefit. They must wait until the age of majority. This is typically between the ages of 18-21. However, even at that age- most young adults are not very responsible when given a huge amount of cash at once.
The best strategy to use if you want your children to receive financial help after your death is to setup a trust. The trust will provide you the opportunity to customize how your life insurance benefit will be distributed to your children when the get to the age of majority.
What happens to a life insurance policy with no beneficiary?
If you do not name or select a life insurance beneficiary, your death benefit is going to be paid to your estate. This is one of the major life insurance beneficiary rules you need to be aware of.
More specifically, if there is no Primary or Contingent beneficiary named on the policy, the life insurance company will pay the estate. This also occurs if the primary or contingent beneficiaries can’t be found.
Does a will override life insurance beneficiaries?
No. A trust or will won’t override a life insurance beneficiary. People sometimes believe that simply updating a will is all you need to do. You need to understand that whoever is named the beneficiary of the life insurance policy will take precedence over who is named in the will.
When choosing your beneficiary, you’ll want to take some time before naming your primary and contingent beneficiaries. If you don’t choose wisely, your estate or family could face tax and legal issues. It’s always a good idea to regularly review your life insurance policy’s beneficiary information.
Thank you for reading our post, Life Insurance Beneficiaries. If you’d like to find out how much your policy may cost you – check out our Life Insurance Rates by Age post.