Selecting life insurance beneficiaries is a very important decision. In general, life insurance policies allow you to select one or more people, a trust, a charity, or your estate as beneficiaries. Below are a few things that you should consider when making this decision.

Primary and Contingent beneficiaries

Life Insurance policies allow you to name primary and secondary beneficiaries. The primary is first in line to receive benefits from your life insurance policy. If this person dies before you, then your benefits would go to the secondary beneficiary listed. You may also name another beneficiary, known as the final beneficiary, should both the primary and secondary pass away before you.

Minors as Beneficiaries

One mistake that you can make is to name minor children as beneficiaries. Your intentions for obtaining a life insurance policy is probably to provide for your dependent children in the event of your death. The courts generally will not allow minor children to directly receive proceeds from life insurance policies. Therefore, those funds may be unavailable to your children until they reach the legal age of 18. And even if they are 18 when you die, it’s probably a bad idea to leave a significant sum of money with an 18 year old.   It may be better to designate a trust as the beneficiary with provisions that allow your assets to  be used to benefit your children  (Minor or adult) .

Can I change my beneficiaries? 

With most policies, you can make changes to your beneficiary designation at any time.  You should review your beneficiaries regularly and make sure you update them if you have any important life changes such as marriage, divorce, death of a spouse, death of an existing beneficiary, have a baby, etc.   When naming beneficiaries, your state, or insurance carrier or employer (if a group life policy) may restrict who you can name as a beneficiary. For example, if you’re married, your spouse may have to sign a waiver before you can name your girlfriend as the beneficiary. : – ) Also, please think about who receives the proceeds if your beneficiaries do not survive you? Should the assets pass to your estate? Or would they be better off in a trust?

Before selecting life insurance beneficiaries, it is important to understand all of your options and the pros and cons of each. Insurance providers and estate planning attorneys are a valuable resource for information and guidance.

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