A comprehensive life insurance policy should have a chosen beneficiary. However, many individuals are unsure of the purpose of a beneficiary and the role your beneficiary plays in your life insurance policy.
Q: What is a beneficiary on a life insurance policy?
A: A beneficiary is the person named on a life insurance to receive your death benefit. The beneficiary will often be a spouse, child or family member; however, it may be more than one person, as well as a charity, a trustee of a trust or your estate. Life insurance policies that don’t have a named beneficiary will be paid to the deceased’s estate.
Q: What is the difference between a primary beneficiary and a contingent beneficiary?
A: You may have noticed that your life insurance policy has both a primary and contingent beneficiary. A primary beneficiary is the primary person who is named to receive your death benefit. A contingent beneficiary is the next beneficiary in line, should the primary beneficiary not be able to be located.
Q: Is it necessary to choose a beneficiary, since my life insurance policy will go directly to my estate and can be distributed at that time?
A: Probate proceedings can often delay the distribution of your life insurance policy, and the cost of probate could take away from your life insurance benefits, so it is best to name a beneficiary to avoid the probate process. Keep in mind that you can change your beneficiary at any time, so don’t delay naming a beneficiary in fear that you may change your mind in the future.
Q: When should I re-evaluate my life insurance beneficiary designations?
A: Any time there is a life change you should reevaluate your life insurance policy. Some of the events that may change your beneficiary status include: marriage; divorce; birth or adoption of a child; and changes in relationships. It is also best to review your life insurance policies on an annual basis to ensure that they are still meeting your financial needs.
