Considerations for Selecting Life Insurance Policy Beneficiaries

Life Insurance

Designating beneficiaries on your life insurance policy is an important decision to ensure the death proceeds of your life insurance policy are paid to the intended people at the time of your death. Careful consideration should be taken when naming beneficiaries on your policy. Beneficiary designations should be reviewed periodically to make updates and changes to your beneficiary designations as changes in your life such as marriage, divorce, birth of a child and establishing a trust could occur.

Policy owners may select anyone as beneficiaries, providing an Insurable Interest exists between the policy owner and the beneficiary. Life insurance companies use the Insurable Interest doctrine to establish the acceptance of a named beneficiary. A person is considered to have an insurable interest to the insured when the death of the insured would cause a financial loss or hardship.

Primary beneficiary – The primary beneficiary is the person, people or entity that is named by the life insurance policy owner to receive the death proceeds when the insured dies. Primary means the proceeds are paid to them first. Policy owners may name a person, people, trust, and charitable institutions or leave it to the estate. It is important to note that life insurance proceeds payable to named beneficiaries avoid probate court, whereas, naming the estate will subject the death proceeds to probate and become available to creditors. The size and complexity of the policy owners’ estate may impact the decision the owner makes when selecting the primary beneficiary.

Contingent beneficiary – The contingent or secondary beneficiary will receive the death proceeds if the primary beneficiary predeceases the insured.

Naming minor children as beneficiaries – Most insurance companies will not pay insurance proceeds to a minor. Consider designating a custodian under the Uniform Transfers to Minors Act on behalf of the minor, establishing a trust or naming a trusted adult who will use the proceeds for the children’s benefit. These options would eliminate the need of the court to appoint a guardian to receive the proceeds to be managed and supervised for the children. A court appointed property guardian for the children would involve possible attorney’s fees and the court’s supervision of the insurance proceeds.

As you can see, selecting the beneficiaries of your life insurance policy involves careful consideration to ensure the proceeds go to the intended people. 

About the author:  Ken Buccico holds a LUTC designation and has been in the life insurance business for 39 years. His wealth of experience empowers clients to make best possible decision regarding a life insurance policy. To explore the best life insurance option, contact Ken at 1-800-651-1953 or KBuccico@Pivot.com.