Choosing a Life Insurance Beneficiary
Have you started to think about protecting the people you love most with a life insurance policy? But aren’t quite sure who to talk to? Or even what to ask? Well, we can help. Purchasing life insurance can feel a little intimidating. But once you learn a few new words it gets much easier. You’ll have the basics down in no time! One word you’ve got to know is beneficiary. Beneficiary, derived from the word benefit, is the person (or people, or even entities such as nonprofit organizations) who receives the benefit, generally a cash amount, when the person insured by a life insurance policy dies.
When Choosing Beneficiaries … Think “Who do I Love?”
When you buy a life insurance policy you’ll be asked to choose beneficiaries, a primary beneficiary and a secondary beneficiary. Choosing life insurance beneficiaries shouldn’t be difficult. Just think about who you love most! The primary beneficiary is usually the spouse of the insured person, especially if they’re a couple responsible for children. If there’s no spouse or children, the primary beneficiary is often the insured’s parents or siblings.
You’ll Need a Secondary Beneficiary, too
With life insurance you’ll also want to choose a secondary beneficiary (sometimes called a contingent beneficiary.) The secondary beneficiary is there just in case the primary beneficiary is unwilling or unable to collect benefits. For example, if the insured and his or her spouse (the primary beneficiary) both pass away suddenly, the secondary beneficiary would collect the benefit.
Beneficiaries who are Minors Need a Responsible Custodian
It is rarely a good idea to name a child as a beneficiary without also naming a responsible adult as a “custodian” to oversee benefit disbursement. Policy owners often name a trusted adult family member, a friend, or an attorney as the minor’s financial custodian until underage beneficiaries reach legal adulthood; usually at age 18 to 21. Another option is to have an attorney set up a trust with the trust named as the beneficiary which can then distribute policy proceeds to an underage recipient at the trustee’s discretion. Trusts are legal tools which hold, protect and disburse one person’s property for the benefit of another.
We’re here to support the big dreams you have for your family and show you great ways to protect the people you love most. Got questions? An American Family Insurance agent