How Do I Choose a Beneficiary for My Life Insurance Policy?

A beneficiary is a person, who will receive the funds in your life insurance policy when you die, which will vary depending on your personal situation and on the laws in your state. You can name a primary and a contingent beneficiary, as well as naming multiple primary and contingent beneficiaries.

Please note that the following information may or may not work for everyone. It should only be used as a guideline for choosing a beneficiary. For more in-depth information, please seek out a planning attorney.

The proceeds from a life insurance policy usually go directly to the beneficiary, thus avoiding probate. Life insurance proceeds are usually not subject to income tax.

However, if there is still an estate tax and your estate is subject to this tax, then the life insurance proceeds may be used to pay this off. It is advised to work with an estate planning attorney and have a will drawn up – and/or a trust, if the attorney feels that it’s a benefit to you.

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When you do meet with the planning attorney, you should discuss your life insurance. If you already have drawn up a will or trust, you should call your attorney prior to applying for insurance.

If you do not have either document, you can change the owner and beneficiary of your life insurance policy at any time.

If you have multiple beneficiaries, you can add one of the following definitions to further direct the distribution of the death benefit:

Per Capita:

If the beneficiary dies before the insured, the remaining beneficiaries will equally divide that share of the proceeds in addition to receiving their own shares when the insured dies either (1) by head or by individual or (2) to share equally.

Per Stirpes:

If a beneficiary dies before the insured, the beneficiary’s share of the proceeds will be given to their heirs rather than going to the remaining beneficiaries when the insured dies.

It is very important to make sure that all documents are clear and concise, because you will not be around to clarify them. Also, make sure that there are no spelling errors and full names are used.

If you have a child under the age of 18 and you name them as a beneficiary, whoever has physical guardianship will typically have financial guardianship. That may not be how you wish for it to be. Again, that’s why it is a good idea to have estate planning done with an estate-planning attorney. Beware of living-trust seminars and non-attorneys peddling living trusts.

Another issues to consider is a simultaneous death, where the insured and primary beneficiary die together (e.g., car crash) and it cannot be determined who died first. Some states have enacted the Uniform Simultaneous Death Act, which provides that, in such a case, the proceeds are paid as if the primary beneficiary died first.

Therefore, the contingent beneficiary would receive the proceeds. If there were no contingent beneficiary, the insured’s estate would receive the proceeds.

Hence, it’s important to consider this in your estate planning and seek out assistance when you come across any questions or concerns.

Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit to join the GET READY! Financial Preparedness Club and access free resources.

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