8 questions to ask when choosing a beneficiary

When you decide to purchase life insurance, you may have someone in mind to designate as the policy’s beneficiary. Since beneficiaries are the people or entities who will receive the death benefit from your policy when you die, the decision is an important one. “We work with beneficiaries everyday who are grateful for one of their loved ones’ final gifts,” says Associate Vice President of Claims Shelli Hopley. “It’s so important to make sure your beneficiary is up-to-date.” Your policy rules and state laws may affect or even restrict your choices. Here are eight questions to consider when choosing or updating a beneficiary for life insurance.

1. What is the purpose of my policy?

You may purchase life insurance for a variety of reasons, including providing financial security for your loved ones, covering funeral expenses, paying off debt, or leaving money to a company or business so they can continue in your absence. Perhaps you would like to leave behind money for your child’s education or make sure the estate and inheritance taxes are covered on any assets your heirs receive. When choosing your beneficiary, think about the goals you would like to accomplish with the benefits.

2. What are my options for selecting a beneficiary?

Beyond your immediate family, you have some additional options when choosing a beneficiary. Some examples of beneficiaries include:

• A single person
• Two or more people
• A trust you’ve established
• Your estate
• A nonprofit group or charity

Once you’ve determined who you’d like to be your beneficiary, you will need to provide certain details to the life insurance company, including full name, Social Security number or tax ID number, date of birth, address, phone number, and the nature of the person’s relationship to you. The next step will be deciding how your death benefit will be distributed. If you have multiple beneficiaries, it’s a good idea to seek help from legal counsel or a financial professional with the process.

3. Should I name my children as beneficiaries?

If you would like your children to receive your policy’s death benefit, there are a couple of important things to consider. If you die while your children are still minors, they may not be eligible to receive the funds until they come of age. This delay could be detrimental if they need your death benefit to help cover living expenses. There are a couple of ways to help ensure your children can receive immediate access to your assets:

Establish a trust

Trusts can be a good solution if you wish to leave money to your children. Setting up a life insurance trust allows you to name a trustee who will oversee the funds and distribute the money to your children. It’s a good idea to speak with a lawyer and tax professional who can help assist with this process.

Guardianship

If a minor is the beneficiary on your policy, a court-appointed legal guardian may be designated to oversee the death benefit. Since this process can often be lengthy and complex, a lawyer can help you navigate the steps to ensure everything is set up properly.

4. When should I change beneficiaries?

Certain life events like marriage, having a child, or getting a divorce can be a good opportunity to revisit who you have designated as your policy’s beneficiary and make any updates if necessary. It’s also helpful to meet with your financial professional every year to review your policy and your beneficiaries to ensure everything still meets your needs.

5. How do state laws affect my beneficiary choices?

Some states may have laws about beneficiaries, so be sure to research your state’s laws or speak to your financial professional about what you need to know. If you are a resident in certain states, you may be required to name your spouse as the primary beneficiary. If you wish to designate someone else, he or she be required to sign a waiver to provide permission.

6. What happens if there is no beneficiary?

If a life insurance policy has no beneficiary listed and the insured dies, the death benefit is typically paid out to the estate. However, most life insurance companies will not issue a policy without a named beneficiary. If all beneficiaries have pre-deceased you, your insurer could issue the death benefit to your estate and a court will decide how to handle the funds.

7. Does my will override my life insurance policy?

In almost all cases, your life insurance beneficiary designations will supersede your will. Since the death benefit is paid directly to your beneficiaries, it doesn’t go through your will or the probate process. This is why having life insurance coverage can be a valuable way to provide financial support to your loved ones or business. Reading a will can often take months, whereas life insurance claims are typically paid out once your beneficiary submits a claim.

8. What happens if my beneficiary dies before me?

Oftentimes, your life insurance policy asks you to name a secondary beneficiary, which is the person or organization that would be next in line to receive the death benefit. In the instance that your primary beneficiary dies before you, can’t be located, or refuses the proceeds at the time of your death, then the death benefit will go to this designated person or entity.

Conclusion

When deciding who to name as your beneficiary, think about the people who depend on you financially or the goals you would like your family, business, or organization to accomplish after you’re gone. It’s a good idea to meet with your financial professional at least once a year or following important life events to make sure your named beneficiaries are up-to-date and support the legacy you wish to leave behind.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

Neither Midland National nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.

B12-MN-9-20

REV 8/2022