Life Insurance Policy
You should consider a lot of things when getting a Life Insurance Policy, after you find that this policy is the best for you, naming a beneficiary is the next thing you should ask yourself.
While filling out the form for your Life Insurance policy, you will find a space that indicates who would you like to receive your death benefits, this part is required to be filled. All your benefits at the time will go right away to the person(s) you nominated, without any question asked. In short, it is always advised to name a beneficiary on your Life Insurance Policy.
What happens if you don’t name a beneficiary? Your estate will determine how your money will be distributed.
Types of Beneficiaries
Revocable and Irrevocable Life Insurance Beneficiaries :
Revocable Beneficiaries: The policyholder (owner) can change the beneficiary designation any time without the consent of the named beneficiary.
Irrevocable beneficiaries: The policyholder (owner) needs the consent of the original beneficiary before appointing a new beneficiary.
Primary Beneficiaries and Secondary Beneficiaries
Primary Beneficiaries: The main beneficiary who you want to receive the benefit after your death is called primary beneficiary.
Secondary Beneficiaries: In case the primary beneficiary dies before you, the secondary beneficiary is the next in line to receive benefits from your life insurance policy. Secondary beneficiary cannot receive your death benefit if the primary beneficiary is alive.
NOTE- You can designate more than one primary or secondary beneficiary where the benefit amount will be distributed according to the percentage you choose at the time of designation.
Things you should do and not do
Here are few things that you should do and not do while naming your beneficiaries.
Things you should do:
- Identify your primary beneficiary, include their full name, date of birth, and other information required by your insurance provider.
- Include percentages rather than amounts.
- Include a second beneficiary in your policy.
- Review your life insurance beneficiaries to make sure that everything is up to date.
- Update your life insurance beneficiaries in the event of death, divorce, or an addition to your family.
Things you should not do:
- You should not name your creditor as a beneficiary.
- Do not use general terms such as spouse, wife, or children.
- Do not use estate if you have family members that you would want to receive your proceeds.
- Don’t keep your life insurance policy a secret. Your beneficiaries should know about it, so that they can claim for it.
Who Can Be Named as a Beneficiary?
You are allowed to choose anyone as your beneficiary. But usually, it’s your children, spouse, a family member, or sometimes even a friend. It is not required that the person you choose is connected to you in any way.
Also, you can name all your benefits to a charity.
Some individuals tend to leave their money to a specific charity that is close to their heart, they do this to ensure that the organization/charity receives a donation even after their death.
How to Change Your Life Insurance Beneficiary/Beneficiaries
Once you have filled out the beneficiary part in your documents, it is your responsibility to make sure that every single information in that document is up to date. Changing or updating the beneficiary on your life insurance is simple, most companies require you to fill out some paper work to update your policy.
You have assigned your spouse as a beneficiary at the time you opted for the life insurance. But after some time, you decide to divorce and marry someone else. At that time, you must update the beneficiary (if you want to) to your new spouse so that he/she receives the benefit.
Harpinder Sidhu advices everyone to choose the Revocable Beneficiary option, simply because you (the policy holder) should have the right to choose and update the beneficiary without having any complicated legal issues. If you choose the Irrevocable Beneficiary, you will face many complicated issues if you go with it, especially if you are thinking on changing the name of your beneficiary.