Choosing Beneficiaries

In all life insurance contracts, the insured must name at least one beneficiary, the person who will receive the benefits the policy provides. But how should you determine who to leave your money to? It’s not an easy decision, but one that with careful thought and understanding can be made more simple.

Who May I Name?

When purchasing a life insurance policy, you can usually name anyone you want as beneficiary. These beneficiaries can include a spouse or partner, child(ren), grandchild(ren), parent, or business partner. It is common practice to name someone who has the most insurable interest in you, meaning that you are worth more alive to them than you are dead. Naming these relatives/partners as beneficiaries can also be a tricky business, however, depending upon how the policy is worded.

Choosing Proper Wording of Beneficiaries

Wording is a major factor when it comes to the beneficiary of a life insurance policy. As an example consider the story of Mr. Jones. His policy may be written to read that “Jane Jones, wife of the insured” will be the person receiving the benefits upon his death. However, Mr. Jones may divorce Jane and remarry. If he dies without changing the actual name of his beneficiary, Jane will still receive his death benefit even though she is no longer Mr. Jones’ wife. It is always best to make any necessary changing of the name of your beneficiary a priority, as your life is not guaranteed and you may die before “getting around to it.”

Children as Beneficiaries

If naming your child(ren) as the beneficiary of your policy, you can name them by their actual names or by class designation. Class designation is a term for members of a group, in this case your children. This can save you from having to add any late-born children by name, but can also raise some problems for the insurance company, as they have no way to identify all the children. All children must be located and contacted before any benefits can be paid out, which can take some time. There is also the issue of illegitimate children, which can cause problems as far as the definition of “children” goes, unless the class designation states that they are born of the policyholder and a certain person. Class designation is in theory a good idea, but if you think there may be problems that arise, it is best to name your children by their actual given names.

If you have no children, and are unmarried, you may name a parent as beneficiary, or any other relative. It is best in these cases to have a contingent, or backup, beneficiary, in case the person named dies before you do. You may also name a business partner or a friend, or even your estate.

Revocable Beneficiaries

Most policies provide for revocable beneficiaries, meaning that you can change who will receive the benefits from your policy at any time. However, there are also policies that name irrevocable beneficiaries. In these cases, the beneficiary must give consent for the policy to be changed. One such example of an irrevocable beneficiary is a first wife. Some divorce rulings state that the first wife and any children must be named as beneficiaries of any existing life insurance policies. In order to change this designation, the insured would have to get permission to do so from his former wife.

Summary

Naming a beneficiary is a necessary part of purchasing a life insurance policy, and one that can present much difficulty. It is always best to consult with an agent to ensure that your loved ones will receive the benefits of your policy as intended.