A beneficiary is the person designated to receive the proceeds of a life insurance policy in the event of the death of the insured. The beneficiary is named in the policy itself. What does it take to qualify as a beneficiary and what should you know about naming a person as your beneficiary?
To qualify as a beneficiary, a person needs to have an insurable interest in the insured. This means that there must be some sort of relationship between the beneficiary and the insured, and that the beneficiary would suffer some form of loss in the event of the death of the insured. In many cases this is a spouse or other close relative but it could also be a business partner or even a business itself.
While a minor can be the beneficiary of a life insurance policy, they may not have access to the actual proceeds until attaining legal age. If the intent is to have proceeds benefit a minor, it is better to have a trusted friend or relative of legal age be beneficiary to administer the funds if your wishes are to establish a trust in the name of the minor.
Many married couples will name each other as beneficiaries, which may be understandable, but could cause problems if both were to die in the same accident. This is where a contingent beneficiary can be useful. A contingent beneficiary is secondary to the main beneficiary, and would receive the proceeds only if the main beneficiary is not alive or otherwise incapacitated. Naming a contingent beneficiary is a good way to help ensure proceeds will not go into the estate.
One of the challenges with beneficiaries is making sure they are up to date. Life happens and major changes to our lives may occur to warrant a beneficiary change. These changes my include a marriage, divorce or death in the family. Like all of your insurance policies, life insurance coverage should be reviewed occasionally for accuracy and to determine if coverage is still sufficient.
If you would like to have a life insurance policy review, get a quote on life insurance, or perhaps have an entire insurance protection overhaul, we invite you to contact us. As independent insurance agents, we are qualified to review the policies from any company for just about any type of insurance.
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