You’ve chosen a life insurance plan, and now it’s time to name a beneficiary. Simple choice, right? Not so fast.
Naming a life insurance beneficiary isn’t always easy, and there’s a lot to consider when planning for how those benefits will be distributed. Not sure where to start? Read on for seven things to consider when choosing a life insurance beneficiary.
Start With the Basics
When you set up your life insurance policy, you must name at least one beneficiary — someone who will receive your policy’s death benefits. This can be an individual, trustee, nonprofit, charity or even your estate. You can also choose multiple beneficiaries and decide how the benefit will be divided.
Think About What You Want
Consider why you have a life insurance policy in the first place. Is it to replace lost income for your spouse? He or she is most likely the right choice for your life insurance beneficiary. Do you want to make sure the family business carries on after you pass? Name someone you trust. If you have other assets, such as a 401(k) or IRA, to distribute to a beneficiary, factor those into your decision, as well.
Consider the Consequences
Is your top choice on Medicaid or receive Supplemental Security Income? Your life insurance benefit could disqualify them from these federal programs. Take this into account as you’re deciding.
Name a Back-Up Beneficiary
After you’ve chosen a primary beneficiary, pick a secondary beneficiary. If your primary choice passes away, can’t be located or refuses the benefits, having a contingent beneficiary means the policy won’t get tied up in court. Make this choice as carefully as you did choosing your primary recipient.
Make Your Decision Known
Discussing plans for after your death can be uncomfortable, but don’t let that keep you from notifying the people you’ve named as your primary and secondary life insurance beneficiaries. This can also help you identify any unintended consequences or potential issues with your choices.
Update Your Plan as Needed
Your life insurance contract must be enforced as written, so don’t assume your will can supersede it. If you update one document, be sure to update the other. Ultimately, the beneficiary named in your policy is the one who will receive the benefits.
And don’t forget to review your will and life insurance policy any time you have a major life change, like divorce, marriage, a significant shift in assets or the birth of a child.
Know the Laws in Your State
State laws dictate how much money a child can receive from life insurance benefits. Speak with your insurance agent or lawyer about how these laws work in your state if you’re considering naming a minor as your life insurance beneficiary. You can also set up a trust or designate an adult to distribute the money as you see fit.
Figure out What’s Right for You
Your local Farm Bureau agent can help you understand your life insurance policy options and choose what’s right for you.