Who Can Be a Life Insurance Beneficiary?

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So you're planning on getting life insurance, but you're not sure who can become your life insurance beneficiary. No problem, it can get confusing - so let's change that!

In this article, we will take a look at what a beneficiary is and some other essential points of consideration.

What Is a Life Insurance Beneficiary?

A life insurance beneficiary is a person who will receive the death benefit if you as the insured, passes away while the life insurance policy is inforce. In other words, the beneficiary will receive the proceeds from the life insurance policy in the event of your death.

And that's practically the entire purpose of life insurance. To provide financial support to your loved-ones when you die. Therefore, it's essential to choose who will get it and keep the information up to date. 

Regardless of how you acquire the life insurance from work or on your own, the beneficiary process works the same.

If you don't select a beneficiary, the policy will payout to the estate probate, which is a long-winded process during which the debts are settled, and the estate is divided. This also means the money will be put up and spread to any creditors who will be interested in getting paid for debts that you weren't able to pay back.

Primary and Contingent Beneficiaries 

Even though the definition of a beneficiary on the policy is an individual who will receive the death benefit in the event of your death, it does not limit you to a single person. 
•    Primary beneficiaries are the first who will receive benefits when you die.
•    Contingent beneficiaries are those who will receive the benefits if the primary is not able to accept the money because they have since passed away.

Let's take this for an example:

Kathrine and Joseph are in the process of getting married so they each purchase a life insurance policy and name each other as their primary beneficiary. Since they travel a lot together, they each decide to add contingent beneficiaries to their policies as well in the event they die in the same accident.

Joseph chooses his sister as contingent beneficiaries and Kathrine chooses her brother.  Each sibling will receive the death benefit, only if Kathrine and Joseph die at the same time. 

So Who Can Be a Life Insurance Beneficiary?

Not anyone can be listed as a beneficiary. It’s important to choose a person that is relevant to you and your life so that there is an insurable interest.
The beneficiary may be a person, class of persons, an institution or other entities such as a foundation, charity, corporation or a trust. The beneficiary can also be the insured’s estate, but this is generally not recommended for the following reasons:
•    Distributions to the intended beneficiaries will be delayed since the estate has to be submitted to and settled through probate court   
•    The proceeds to the intended beneficiaries could be reduced through probate court
•    It can expose the death benefit to taxation and fees that could otherwise be avoided
You should always try and choose an adult as a beneficiary. Since minors can’t own property in the United States, if one is named as the beneficiary of a life insurance policy, someone may have to petition and be appointed by the court to act as a conservator of these assets for the child. This process may be costly and time-consuming. 

Keep Your Beneficiaries Up-to-Date

Beneficiaries can be changed at any time.  So when there is a major life event, such as getting married, having children, getting a divorce, or even experiencing a death, you should review your life insurance policy to make sure who you have listed as your beneficiary still makes sense and change them if they don’t.  If not updated, your beneficiary choices could result in unintended heirs or adverse tax consequences.

Importance of Life Insurance

Having a life insurance policy in place will make sure that your loved-ones are protected against the financial impact caused by a sudden and unexpected death.  There are simple needs calculators you can use to determine how much life insurance you need no matter your age or income level.

We invite you to explore our website to learn more about specific products, get advice, and most importantly, begin the process of protecting your family and legacy.


Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Vantis Life encourages individuals to seek advice from their own investment or tax advisor or legal counsel.