Who Can I Name as Beneficiary and Can That Information Be Changed?
One of the most common questions about term life insurance policies revolves around beneficiary information. Many clients I speak with want to know if a beneficiary can be changed at any time and who can be named a beneficiary. These are great questions and I think it’s also a grey area for some people as they hear different information from many sources about beneficiaries. This leaves people with conflicting information and uncertainty.
So here are some important areas to understand about naming beneficiaries with term life insurance policies. As far as who you can list, that can be anybody, as long as there is insurable interest. Insurable interest is defined as “An economic stake in an event for which an insurance policy is purchased to mitigate risk of loss. An insurable interest is a basic requirement for an insurance company to issue a policy. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event. Insurable interest is what makes an insurance contract legal and valid, and protects against intentionally harmful acts.” (Source: http://www.investopedia.com/terms/i/insurable-interest.asp). Insurance companies will often ask what the insurable interest is. The reasoning for this is you can’t name a person who has no connection to you or would not be impacted in some way by your passing. For most clients I speak with they are listing their spouse, children or other relatives.
Clients often ask me how many people they can list as beneficiaries. You can list as many as you want but the key to this is that share amount has to total up to 100%. You may divide it 50%/50% or 70%/30% or 10% each if there are 10 people, for example. Keep in mind that beneficiary information can always be changed and updated at any time with your life insurance carrier.
Another popular question is: What are the differences between Primary, Contingent and Tertiary beneficiaries? With a term life insurance policy, the primary beneficiary is the one person (or persons, if more than one) that is the first in line to receive the money when a proposed insured passes away. So if a spouse is 100% primary beneficiary and the policy face amount is for $500,000, they would receive the full $500,000. If there is more than one primary, the money is divided based on the share percentage allocated to each person. A contingent beneficiary is the secondary or back-up behind the primary beneficiaries. If the proposed insured passes away and the primary beneficiary ends up passing away before the life insurance proceeds are issued to the primary, then the life insurance proceeds would default to the contingent. The same goes for tertiary which is third in line. If the contingent beneficiary passes away before the proceeds are issued to the contingent it would pass on to the 3rd or tertiary beneficiary.
In my opinion, when it comes to naming beneficiaries, make sure you take the time to really think about who the life insurance funds are protecting. Who will receive the money and who is the person or persons that will take care of your needs? Naming contingent and tertiary beneficiaries is also something to consider. It’s not required, but it’s a good practice to think through everything and have a plan in place. Again, you can always change and update beneficiary information at a later date. Make sure your loved ones know there is a policy and where the copy of the policy is so they can contact the insurance provider to file a claim upon one’s passing.
About the author: Dan Cody has been in the life insurance business for over 7 years. He loves playing a variety of instruments including the guitar, bass, drums, and piano. He also supports cancer research foundations and volunteers at local pet shelters. Dan enjoys helping customers understand life insurance, so they can find a solid policy that fits their needs. You can reach Dan at 1-800-651-1953 or DCody@Pivot.com.