What Is a Beneficiary?
In basic terms, a beneficiary of a life insurance policy is the person or entity that receives a set payment from the insurance company in the event of your death. You cannot obtain a life insurance policy without listing at least one person or entity to serve as the beneficiary. The beneficiary has the right to use these funds in any way they choose. You have the right to change the name of your beneficiary at any time before your death.
Primary Versus Secondary Beneficiary
In some cases, you will be able to list both a primary and a secondary beneficiary. The primary beneficiary will receive 100 percent of the life insurance payment upon your death. The secondary will only receive payment from the life insurance policy if the primary beneficiary is no longer living at the time of your death.
You also have the option of selecting multiple beneficiaries. For example, a policyholder may choose to list all their children as primary or secondary beneficiaries. It’s recommended that you put a certain percentage or set amount to be paid to each beneficiary listed. Otherwise, the insurance company will divide the life insurance payment equally among each beneficiary.
Who to Select as Beneficiary?
In most cases, you can choose any living person to serve as your beneficiary. However, some states require married individuals to list their spouse as their primary beneficiary. In addition, some states consider a life insurance policy to be community property, which entitles your spouse to at least 50 percent of the payment.
While you may be able to designate anyone as your beneficiary, there are several common options, including:
- Spouse – Many married people select their spouse as their beneficiary because they want to make sure that their family is taken care of if an unforeseen incident were to occur. If selected as your primary beneficiary, your spouse will receive the full payment from the insurance company upon your death.
- Children – Many parents, especially single parents, often list their children as their primary beneficiaries. In addition, many married policyholders designate their children as secondary beneficiaries in case both parents die at the same time. It’s important to note that insurance companies will not make payments to minor children. If your children are under the age of 18, it’s recommended to list a custodian or to set up a trust to control the money until your child is of age. Without this designation, the courts will select a custodian on your behalf. It’s best to seek out both legal and financial advice when setting up a trust.
- Parents – You may also want to consider listing your parents as a beneficiary, especially if you are not married or you have a financial obligation with your parents. For example, if your parents co-signed a loan or student loans for you, life insurance can help to protect them financially in the event of your death.
- Friends and Other Family Members – You can also choose any close friend or family member that you want to make sure is financially protected if something were to happen to you.
- Business Partners – If you have started a business with one or more partners, you may want to establish a life insurance policy that protects them in the event of your death. It’s important to talk to your partners and seek legal advice to see if this is a good option for you.
- Estate – If you have an official last will and testament, you can designate your estate as your beneficiary. It’s crucial that you speak with legal and financial experts before making this decision because it could have some negative financial repercussions.
- Charity – You can also choose for your entire life insurance payment or portion to go to a specific charity.
Choosing the Right Life Insurance Policy
Your first step should be to contact a reputable insurance agency, such as Sandifer Insurance Agency. Unlike some of our competitors that solely focus on making a sale, our expert brokers focus on building relationships. We take the time to get to know you and to understand your specific needs, so we can match you with the perfect life insurance policy.
As a second-generation agency, Sandifer Insurance Agency has been proudly serving customers throughout North and South Carolina for more than 37 years. We are a full-service agency that provides life, auto, home, farm, and business insurance that helps to protect our customers. Contact our office today to learn more about your insurance options.