Life Insurance Beneficiary Rules You Should Know

It’s not strictly necessary to name a beneficiary. If your life insurance policy has no beneficiary, proceeds will become part of your estate, and the probate court will oversee how funds are distributed. However, we don’t recommend this option since it makes it more difficult for your loved ones and dependents to access the funds they need.

You are allowed to name multiple primary or contingent beneficiaries. For example, if you’re married, you might name your spouse as a primary beneficiary. If you have adult children, you might also name all of your children as contingent beneficiaries, who would receive the payout if your spouse is no longer alive.

In community property states, you may be required to name your spouse as a beneficiary if you have one. If you name someone other than your spouse as a beneficiary, your spouse may still be entitled to 50% of the proceeds regardless of who is named.

Many parents take out life insurance policies to help provide for their children in the event of their death. You can name minor children as beneficiaries, but they won’t be able to receive the benefit directly if they’re under 18 years old. For this reason, it’s usually best to designate a spouse or other caregiver as the beneficiary.

While it’s common to name a loved one as a beneficiary, it’s not strictly necessary. You can also name a charity or other organization as a beneficiary. This might be a good option if you’re already confident that your loved ones would be financially secure if you were to pass away.

A beneficiary must be able to accept an inheritance and sign documents. For this reason, you can’t legally name your pet as a beneficiary of your life insurance policy. However, you can set up a trust designating the pet’s guardian as the beneficiary.

If you’re purchasing a life insurance policy for another person with the intent to name yourself as a beneficiary, you must first obtain their consent. You must also have insurable interest, meaning that you depend on the individual and would be financially impacted by their death. In most cases, it’s a good idea to have an individual, such as a parent, take out a policy on their own behalf and name you as a beneficiary.

If you experience a life-changing event, like a divorce, your beneficiary list will not be updated automatically. You must manually instigate a change in your policy’s beneficiary. In some cases, you may want to keep an ex-spouse as a beneficiary. For example, if they would be responsible for caring for your children in the event of your death, you may still wish to keep them on your policy.

Some beneficiary designations are irrevocable, meaning that they can’t be changed unless the beneficiary agrees to forfeit their right. Some policyholders choose to name certain family members, such as dependent children, as irrevocable beneficiaries. However, you should think hard about whether or not you truly need to list someone as an irrevocable beneficiary since it can be very difficult to change in the future.

Beneficiaries must file a claim with your insurer to receive a payout. The process isn’t automatic. If there is more than one beneficiary for a policy, each beneficiary must make a separate claim to receive their portion of the funds.

If the life insurance policy has a designated primary beneficiary, they will be first in line to receive the death benefit for a life insurance policy. If the primary beneficiary is deceased, a secondary or contingent beneficiary is eligible to file a claim.

Contingent beneficiaries can only receive a payout if the primary beneficiary is unable to do so. In most cases, this means that the primary beneficiary has passed away. They may also be unreachable or have declined to accept the payout.

Policyholders can choose how they want to distribute life insurance payouts. For example, you might want to divide the payout equally between the named primary beneficiaries. On the other hand, you might want to choose a percentage for each beneficiary to receive. For example, 50% of a payout might go to your spouse, and 50% may be split amongst your children.

Many people purchase life insurance to be able to provide for their families in the event of their death. While minors can be named as beneficiaries of a life insurance policy, they can’t receive death benefits until they turn 18. Instead, the proceeds will go to their legal guardian. You may also be able to set up a trust to ensure that your funds are used to provide for your children, grandchildren or other dependent minors.

If you decide to split your policy’s benefit per capita, you’re splitting it “per head” so that each beneficiary receives an equal sum. This might be a good idea if, for example, you’re naming your three adult children as beneficiaries. If a beneficiary passes away, the payout is divided equally between the remaining beneficiaries.

Per stirpes means “by branch.” If you decide to divvy up your policy’s payout per stirpes, it means that a death benefit will pass along a family lineage. For example, say you list your three adult children as primary beneficiaries of your life insurance policy. If one of your children passes away, then their children (your grandchildren) would be eligible for their parent’s death benefit.

In some cases, you may want to allot different percentages of the death benefit to different beneficiaries. For example, you may want your spouse to receive 70% of the death benefit and your parents or children to receive 30%. This method of splitting the death benefit is often used when you have more than one beneficiary with differing levels of financial dependence on you.