8 questions to ask when choosing a beneficiary

When deciding to purchase life insurance, you may have someone in mind to designate as the policy’s beneficiary. The decision is important since beneficiaries are the people or entities who will benefit from your policy when you die. Here are some guidelines and policy rules to keep in mind when choosing or updating a beneficiary.

Common questions about life insurance beneficiaries

If a person or entity doesn’t immediately come to mind when thinking about who to designate as a beneficiary, several questions can help inform your decision.

What is the purpose of my policy?

Life insurance is purchased for various reasons, including providing financial security for loved ones, covering funeral expenses, paying off debt, or leaving money to a company or business so they can continue in the insured’s absence. A person may want to leave behind money for their child’s education or make sure applicable estate and inheritance taxes are covered on any assets their heirs receive. When choosing a beneficiary, think about the goals you would like to accomplish with the benefits.

Who can be a beneficiary?

Beyond a person’s immediate family, there are some additional options when choosing a beneficiary. Some examples of beneficiaries include:

• A single person
• Two or more people
• A trust that has been established
• An estate
• A nonprofit group or charity

Once a beneficiary has been selected, the life insurance company will need to be provided with certain details, including the person's full name, Social Security number or tax ID number, date of birth, address, phone number, and the nature of the person’s relationship to the person applying for coverage.

Can you have multiple beneficiaries?

It is possible to have more than one beneficiary on a life insurance policy, and the death benefit is usually divided between them in a percentage. For example, if two children are named beneficiaries, the death benefit may be split 50/50, or 75% of the payout could go to a spouse, and 25% could go to a child. If there are multiple beneficiaries, it’s a good idea to seek help from legal counsel or a financial professional with the process.

Should I name my children as beneficiaries?

If a person would like their children to receive a policy’s death benefit, there are a couple of important things to consider. If the insured dies while their 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 the death benefit to help cover living expenses or funeral costs. There are a couple of ways to help ensure children can receive immediate access to the benefits.

Establish a trust

Trusts can be a good solution for leaving money to children. Setting up a life insurance trust allows a trustee to be named who will oversee the funds and distribute the money to one or more children. Meeting with a lawyer and tax professional can help assist with this process.

Guardianship

If a minor is the beneficiary of a 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.

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 is designated as a policy’s beneficiary and make any updates if necessary. Meeting with a financial professional every year to review your policy and your beneficiaries is also helpful to ensure everything still meets your needs.

How do life insurance beneficiary rules affect my options?

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

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 the insured, the insurance company could issue the death benefit to the estate.

Does my will override my life insurance policy?

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

What happens if my beneficiary dies before me?

Often, a life insurance policy asks the applicant to name a secondary beneficiary, the person or organization next in line to receive the death benefit. If a 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.

How to designate a beneficiary 

When deciding who to name as a 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. Consider meeting with a financial professional at least once a year or following important life events to ensure 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.

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