- Beneficiaries: an important choice in life insurance policy
- June 4, 2015
A life insurance policy is a contract between the policyholder and an insurance company. In exchange for premiums (or payments), the insurance company provides a pre-determined lump-sum payment, known as a death benefit, to the beneficiaries in the event of the policyholder’s death.
The type of policy an individual purchases depends on his or her insurance needs and the needs of the surviving family members or beneficiaries.
While the discussion of our own death is never an enjoyable topic, it is an important one to have, especially if you have people depending on you emotionally and financially.
Because life is rather unpredictable, it is always a good idea to get our personal affairs in order as soon as possible, which includes purchasing life insurance.
People often get overwhelmed with the number of life insurance possibilities they may have at their disposal. However, some of the seemingly smaller elements of a policy are just as significant – specifically, choosing a beneficiary.
By definition, a beneficiary is a person who derives advantage from something, especially a trust, will, or life insurance policy.
Beneficiaries are either named specifically in the life insurance policy or they have met the stipulations that make them eligible for whatever distribution is specified.
When determining a beneficiary, the policyholder can also name more than one person as the beneficiary or they can name an entire organization as the beneficiary.
For example, the policyholder names two people as the beneficiaries. A portion or a certain percentage would go to person “A” and the reminder would go to person “B”.
It is important to choose your beneficiary wisely; they will be inheriting your benefits. This person will most likely be dealing with funeral costs, paying off any past debts and other final expenses.
It is also recommended to list someone as a contingent beneficiary, in the event the primary beneficiary dies before you.
When naming a beneficiary, it is important to include the following information in the insurance policy:
· Full name (including the maiden name)
· Social Security number
· Phone number
· Current address
By including all of this information, you will make the death claim process run smoothly so your beneficiary can claim the proceeds as quickly as possible.
A costly mistake is assuming that the benefits will automatically be assigned to either your surviving spouse or your next of kin. By not naming a beneficiary, your insurance proceeds will be doled out according to the beneficiary provision in your policy. This will most likely delay the process and could result in a court case hearing to determine the appropriate beneficiary.
No matter how or when you decide to purchase life insurance, it is important to choose beneficiaries wisely.
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