While no one wants to think about what happens after they die, it’s important to make sure the people you care about will be financially stable. That’s where life insurance comes in. Life insurance coverage protects your loved ones if something happens to you.
You will need to decide who will benefit from your life insurance (also known as your beneficiary). While the decision may seem obvious, there are a few things you should take into consideration.
A beneficiary is an individual or organization to which a policy’s death benefit would be paid by the life insurance company upon the insured person’s death. Beneficiaries must have an insurable interest in the life of the insured person. They can be:
When choosing the beneficiaries for your life insurance policy, consider why you bought the policy in the first place. People usually purchase life insurance to protect those they love so there will be a safety net in place if something happens. Think about the people in your life and how they would be affected financially if you die.
If you’re married, your spouse is most likely the obvious choice. The death benefit can help take care of daily expenses, monthly bills, and assist with any debts you leave behind. It can also help cover extra costs such as college tuition for your children.
If you’ve been helping older parents take care of their finances or are responsible for the health of a disabled relative, the payout could help them maintain their quality of life after you’re gone.
After reviewing your estate and your assets, you may find that an existing policy would no longer be needed to cover personal expenses when you die. If that is the case, you may wish to make a charity the beneficiary—your local church or Catholic school, for example.
In some cases, you may want to name multiple primary beneficiaries (like both your children) and designate how much goes to each. A contingent (secondary) beneficiary can also be a smart option in case your primary beneficiary dies first.
People commonly divide their life insurance payouts in one of the following ways:
Your will, estate planning documents and life insurance beneficiaries should align to avoid any potential conflicts, as they are separate legal contracts. (NOTE: Catholic United Financial is not permitted to provide legal advice. Consult your personal legal advisor with any questions about your will, trusts or other legal documents.)
Life changes, so it’s important to make sure the beneficiaries for your life insurance reflect your current wishes and situation. Having a former spouse as a beneficiary, for example, most likely would not reflect your current wishes. A deceased relative listed as a beneficiary can needlessly complicate the payment of a death claim.
Paul Lindemann, Catholic United’s Compliance Manager, has firsthand knowledge of the importance of regularly reviewing life insurance beneficiary designations. “After one of my close relatives died, we discovered that one of his life insurance policies listed the trustee of a specific trust as the beneficiary. Unfortunately, the trust in question had never been created. His wife eventually received the death claim proceeds, but it took several weeks and hundreds of dollars in legal fees that could have been used for other expenses.” Lindemann appreciates that “bringing up the topic of life insurance beneficiary designations would have led to a tough conversation, but to this day I regret not having that conversation with him.”
A good rule of thumb is to review your beneficiaries once a year or after major life events like marriage, divorce, or a new baby. You can update your beneficiaries anytime, and the process is typically easy—just contact your Sales Representative to review your current beneficiary and make a change.
No one likes talking about death, but it’s important to have a conversation with your beneficiary and any other people who would be responsible for managing your affairs after you die. You may want to discuss who your insurance company is and where you keep your policies and other important documents. Tell your beneficiary why you chose them, and make sure they understand your final wishes. This is also a great opportunity for your beneficiary to bring up any questions or concerns they may have.
The whole idea behind life insurance is to protect the people who matter most. The last thing you want to do is to add to the burden of losing you. Naming a beneficiary eliminates confusion and makes your final wishes clear to everyone. It also saves time, helps avoid payout delays, and provides for your loved ones’ immediate needs and helps them down the road.
Catholic United Financial is not permitted to provide legal advice. Consult your personal legal advisor with any questions about your will, trusts or other legal documents.
