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
