How to Pick a Life Insurance Beneficiary
Choosing a life insurance beneficiary affects your family’s financial future. The person or entity you name receives the death benefit after your death. Careful selection ensures your wishes stay intact and your family avoids confusion or delays.
/Stocksy_txp80480301dlW200_Medium_2737116_ibylwp.jpg)
A life insurance policy beneficiary receives the payout from a life insurance policy after the policyholder’s death. You may name a spouse, child, other family member, friend, or charity. The policy contract outlines this selection and determines who gets the money based on life insurance beneficiary percentages.
- Spouse or partner
- Children
- Siblings or relatives
- Friends
- Business partners
- Nonprofit groups
- 50% to your spouse
- 25% to your child
- 25% to a sibling or another loved one
Primary beneficiaries are first in line to receive the benefit. If a primary beneficiary is no longer living or unable to claim the payout, the benefit passes to your contingent (backup) beneficiary. This ensures your life insurance proceeds go where you intend.
Choosing a beneficiary for your life insurance policy requires careful thought. This person or persons will receive the payout when you pass away, so it’s important to pick someone you trust completely. Many people choose a spouse, partner, or close family member. You should also consider how the payout will impact their financial situation and whether they can manage the funds responsibly.
It helps to decide if you want to name more than one beneficiary or include contingent beneficiaries as backups. Life changes like marriage, divorce, or the birth of a child might affect who should receive the benefits. Review your beneficiary choices regularly to make sure they still match your wishes. Keeping your policy up to date helps avoid confusion or disputes later on.
Some beneficiaries may be minors or unable to manage a large sum of money. In these cases, you might want to set up a trust or name a legal guardian to handle the funds on their behalf.
Many people make mistakes when naming a life insurance policy beneficiary. One common error is forgetting to update beneficiaries after major life events. Failing to review your policy regularly can lead to unintended recipients receiving the payout, which may cause family conflicts or financial complications.
Another mistake involves not naming contingent beneficiaries. If your primary beneficiary passes away before you, the insurance company will pay out according to your policy terms or your estate, which may not reflect your wishes. Naming backups ensures your benefits go to the right people, even if something changes unexpectedly.
Some policyholders also choose beneficiaries who you should never name as the beneficiary. They may not be prepared to handle a large sum of money. Without proper planning, this can create problems for the payout recipients. Consider setting up trusts or working with financial professionals to help manage the funds responsibly. Avoiding these mistakes can give you peace of mind and protect your loved ones.
- Request the beneficiary change form
- Fill out the form with the new beneficiary details
- Sign the form as required
- Submit the form to the insurer by mail, fax, or online
- Confirm the insurer has processed the change
- Keep a copy of the updated policy or confirmation for your records
- The beneficiary obtains a certified copy of the death certificate.
- The beneficiary contacts the life insurance company.
- The beneficiary completes the claim form.
- The beneficiary submits the paperwork.
- The beneficiary waits for the insurer to review the claim.
- The beneficiary receives the payout.
- The beneficiary reports any interest income if required.
- Choose someone you trust to handle the payout
- Confirm their full legal name and contact details
- Decide if you want to name primary and contingent beneficiaries
- Consider how the payout will affect each beneficiary’s financial situation
- Think about minors—name a guardian or trust if needed
- Review your beneficiary choice regularly and update if circumstances change
- Make sure your beneficiary understands their role
- Keep beneficiary information with your policy documents
- Check if your policy requires a notarized form to make changes
FAQs
Can I name more than one beneficiary?
- Yes, you can list multiple people and use beneficiary allocations to decide who gets what
- You must decide how to split the payout with an allocation for each beneficiary
- You can also name backups (contingent beneficiaries) and split benefits using beneficiary percentages
What happens if my beneficiary dies before me?
- The payout may go to a contingent beneficiary
- If no backup exists, the money goes to your estate
- Courts may decide who receives the funds
Can I change my beneficiary at any time?
- Yes, if you own the policy and the designation is revocable
- You must contact your insurer and complete a form
- Changes take effect once the insurer updates your policy
Should I tell my beneficiary they’re listed?
- Yes, so they know to file a claim
- They may need policy details after your death
Do beneficiaries pay taxes on life insurance?
- The death benefit usually stays tax-free
- Interest earned after the payout may get taxed
- Large estates may face estate taxes, depending on size
Get a free quote online and find coverage that fits your budget and goals—all without the hassle of a medical exam | just a few health questions.\ Issuance of a policy may depend on your answers to health questions provided in the application.
Disclaimer: The information and content provided is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs.