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Inside this Article
Life Insurance - What Is A
Beneficiary?
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When you buy life insurance, you likely
have in mind specific family members who will receive the death benefit
when you die. Unfortunately, many people do not ensure that a son or
daughter is added to their insurance policy, or that an ex-spouse is
taken off, leaving family members empty-handed after their death.
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The
only way to make sure that the right person gets your benefit is to keep
your policy's beneficiaries up-to-date.
A beneficiary is the
person or entity you name in a life insurance policy to
receive the death benefit.
You can name:
- One person
- Two or more people
- The trustee of a trust you’ve set up
- A charity
- Your estate
If you don’t name a beneficiary, the death
benefit will be paid to your estate.
Two “Levels” Of Beneficiaries
Your life insurance policy should have both
“primary” and “contingent” beneficiaries. The primary
beneficiary gets the death benefits if he or she can be found after your
death. Contingent beneficiaries get the death benefits if the primary
beneficiary can’t be found. If no primary or contingent beneficiaries
can be found, the death benefit will be paid to your estate.
As part of naming beneficiaries, you should identify them as clearly as
possible and include their social security numbers. This will make it
easier for the life insurance company to find them, and it will
make it less likely that disputes will arise regarding the death
benefits. For example, if you write "wife [or husband] of the
insured" without using a specific name, an ex-spouse could claim
the death benefit. On the other hand, if you have named specific
children, any later-born or adopted children will not receive the death
benefit—unless you change the beneficiary designation to include them.
Besides naming beneficiaries, you should specify how the benefits are to
be handled if one or more beneficiaries can’t be found. For example,
suppose you have two children and you name each one to receive half of
the death benefit. If one of the children dies before you do, do you
want the other child to get the entire death benefit, or the deceased
child’s heirs to get his or her share?
If the death benefit goes to your estate, probate proceedings could
delay distributing the money, and the cost of probate could diminish the
amount available to your heirs.
Choosing beneficiaries, and keeping those choices up-to-date, is an
important part of owning life insurance. The birth or adoption of
a child, marriage or divorce can affect your initial choice. Review your
beneficiary designation as new situations arise in order to make sure
your choice is still appropriate.
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