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What Is a Life Insurance Beneficiary?

Life Insurance
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A mother and father play with their two young girls after choosing their life insurance beneficiary

When it comes to life insurance, choosing a beneficiary is an important step. A life insurance beneficiary is the person, charity, trust fund, business or other legal entity that will receive the death benefit if you die while covered by a life insurance policy.

To help you decide who your beneficiary should be, here's some information on what a beneficiary is and the rules behind choosing one.

What Is a Beneficiary?

In general terms, a beneficiary is usually a person or entity that receives money or other benefits as a result of something else. For example, residents of a town could be the beneficiaries of a new law that lowers their taxes. If someone is receiving money from a trust fund, they are the beneficiary of the fund.

This term is also commonly used to name the person or entity who will inherit property or assets after the original owner passes away. The heirs named in a will are the beneficiaries of the will. If you have a 401(k) or another type of retirement plan, it's likely that you'll be asked to name a beneficiary to inherit the money left in the accounts after your death.

What Is a Life Insurance Beneficiary?

A life insurance beneficiary is the person or entity you choose to receive the death benefit from your policy. The life insurance company will ask you to name a beneficiary and provide their contact information and Social Security or tax ID number, if you have it available. Putting down this extra information can help the life insurance company confirm the beneficiary's identity so they can pay out the death benefit faster.

You can also have more than one beneficiary for your policy. There are generally two types of beneficiaries: primary and contingent. The primary beneficiary is the person or entity that you designate to receive the death benefit. A contingent beneficiary is the person or entity that receives the death benefit if the primary beneficiary is unable to receive the money. You can name more than one primary beneficiary or contingent beneficiary, and you can assign the percentage of the death benefit they will each receive when you die.

Depending on the situation, the division of the death benefit will also depend on whether it's per capita, which means the death benefit can only go to the named beneficiaries in equal shares, or per stirpes, which means that if any of your named beneficiaries have already died at the time of your death, their share of the death benefit will pass to their descendants.

Who Can & Can't Be Your Beneficiary?

There is a good deal of flexibility when choosing your life insurance beneficiary. You can pick any adult person, such as your spouse or partner, another family member, one or more business partners or the guardian you picked for your children. You can also pick charities, businesses and other entities. If you have young children, another option is to set up a trust fund and name that as a beneficiary.

If you don't name a beneficiary on your policy, the life insurance company would then pay the death benefit to your estate, which the state courts would distribute according to your will and the probate process.

What Should You Consider When Naming a Beneficiary?

As you review possible candidates for the life insurance death benefit, think about who you want to receive the money. If it's your young children, you may want to be careful about simply naming another adult as the beneficiary, because then they would have control over the funds. Setting up a trust could help to ensure that the money goes to your children when they reach adulthood.

Since you have the option to choose both a primary and contingent beneficiary (and more than one of each), naming a contingent beneficiary may be a good move. That way, in the event of a major accident, such as if you and your original beneficiary die in the same car crash, the insurance company would know who to pay as a backup.

Finally, consider reviewing your beneficiary decision regularly. The beneficiary instructions on life insurance take precedent over your will. If, in the future, you want someone else to receive the death benefit but don't change the beneficiary, the insurance company would still pay the person you have listed. Luckily, it's usually simple to change your beneficiary by using a form.

For more help understanding life insurance, consider meeting with a financial representative to discuss setting up your beneficiary. They can help you make sure the right person or entity gets the death benefit from your policy.

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IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.