The Quick Answer
A life insurance beneficiary is someone who a life insurance policy holder elects to receive the policy’s payout (death benefit). Here some other things to know about life insurance beneficiaries:
- You can have multiple primary beneficiaries and can select how you would like to divide the death benefit between them
- You can have contingent beneficiaries that take the place of the primary beneficiary if they can not be found, have passed away, or refuse to accept the death benefit.
- Primary beneficiaries must be financially competent however, if you would like to elect someone who is financially incompetent, like a child, you may do so by assigning them a gaurdian that you trust to make sure they use their death benefit as planned
What is a life insurance beneficiary?
A life insurance beneficiary is the person that would receive a life insurance policy’s payout (death benefit) in the event of a policy holder’s death. The beneficiary protected by that policy holder will then have the funds to help cover any financial obligations such as the policy holder’s burial costs and any other final expenses. With the remainder of the death benefit the life insurance beneficiary can cover their own expenses such as school expenses or a mortgage. You may declare multiple beneficiaries in your policy and divide the amounts that you would like to dedicate to each one of them.
What is a primary life insurance beneficiary?
A primary life insurance beneficiary is the foremost individual to receive a policy holder’s death benefit. It is possible to have multiple primary beneficiaries. In some situations where your passing would gravely affect multiple people you may assign them each as a primary beneficiary.
Primary Beneficiaries must be financially competent to receive the benefit, so keep this in mind. Now, if you would like your beneficiary to be someone that is not financially competent such as a child; you may do so by assigning a guardian that you trust who will ensure your beneficiary uses their death benefit as planned.
What is a contingent beneficiary?
A contingent beneficiary is a back up beneficiary that would receive a policy holder’s death benefit if something has happened to the primary beneficiary. For example, if the primary life insurance beneficiary could not be found, has passed away themselves, or refuses to accept the death benefit, then the contingent beneficiary would be the one to receive the funds.
It is important to have contingent beneficiaries because life can change unexpectedly and it would only be right that someone you know and appreciate receive your death benefit. It is possible to have more than one life insurance beneficiary and contingent beneficiaries for each of them. Depending on your life insurance provider you may be able to have up to 10 of each.
How to decide on your primary beneficiaries?
The reason you would want life insurance is to cover someone financially in the event of your passing. Here is a list of people that you may consider as a primary beneficiary:
- Your children
- Your parents that you support financially
- Your spouse
- Close friends and family members
- Anyone that relies on you to provide for them financially
Do not worry if you think any of your primary beneficiaries should need to be changed down the road for any reason because you can change their designation any time. Just make sure to go over your beneficiaries every once in a while to determine if they should receive your death benefit. Some big life events like a divorce, or someone that was financially dependent on you becomes independent and there is someone else that could use your death benefit.
Protect your primary beneficiary with life insurance
In the end a primary life insurance beneficiary is a loved one that you would like to leave a legacy for after you pass away so that they may lead a better life. So make sure to brush up