Choosing a Beneficiary for Your Life Insurance Policy

When you purchase a life insurance policy you will be asked to name a beneficiary. The beneficiary is the person or entity who will receive the death benefit payable under the policy.

A beneficiary may be:

• One person;
• Two or more people;
• A trust;
• A company;
• A charity; or
• Your estate.

If you do not name a beneficiary, the death benefit will be paid to your estate.

Most life insurance policies have two categories of beneficiaries – a primary beneficiary and a contingent beneficiary. The primary beneficiary will receive the entire death benefit amount, unless the primary beneficiary cannot be located after your passing. The contingent beneficiary will only receive the death benefit if the primary beneficiary cannot be located (assuming, of course, that the contingent beneficiary can be located). If neither the primary nor the contingent beneficiary can be located, the proceeds from your life insurance policy will be paid to your estate.

Be Specific When Naming Beneficiaries

When naming beneficiaries, you should always try to be as specific as possible in order to clearly identify your intended beneficiaries. This helps to avoid any future disputes over who is entitled to the policy benefits.

Provide full name, address, and ideally the social security number of all beneficiaries.

Be careful when using terms such as "husband", "wife", "spouse", or "partner". For example, if you simply refer to your beneficiary as your "wife", an ex-wife may try and claim the benefit. It is always better to clearly name and indentify the individual.

With regard to children, be careful not to exclude any future children from receiving any benefit (unless, of course, that is your intention). For example you may wish to name your existing children and include a phrase such as "and any future born or adopted children".

Keep Your Beneficiaries Up to Date

Always keep your beneficiaries up to date, particularly if you undergo any significant life events, such as get married, get divorced, or have children.

September 3, 2010