Life Insurance Beneficiaries

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Choosing a Recipient of Your Life Insurance Policy

Selecting life insurance beneficiaries is very important. You could choose for the insurance money to go directly to a trust or estate, but it's usually easier for everyone involved to name a specific beneficiary on your policy. This person would be able to immediately receive the financial authority to disperse funds according to your wishes. If the life insurance proceeds went to your estate or got tied up in probate, funds that your family may need could be delayed for months.

As with many legal proceedings, you want to be extremely specific in how you designate the beneficiary of your life insurance policy. If you want your spouse or sibling to get the proceeds of your life insurance, you need to give that person's name and not just the designation of 'wife' or 'brother'. For example, if you have a previous wife or an unknown sibling, that person could lay claim to the life insurance benefits. If your beneficiary ever changes, be sure that you keep it up to date on your policy. The beneficiary could die, or families could be changed to include more children.

On most policies, there are options to designate more than one beneficiary. This is helpful in case something was to happen to the primary beneficiary. It also would make the legal circumstances much easier for the secondary beneficiary if this case were to occur. For example, if your husband was the beneficiary and both of you perished in a car accident together, without a secondary beneficiary there is no one to receive the funds from your life insurance policy. Even if you have children, they would not get access to the distribution. The money would automatically be distributed to an estate. Even if you didn't set one up, the probate court would decide on the amount of inheritance and the distribution. Legal fees and time could take a huge chunk out of that money. Be sure to prepare for such circumstances while you still can, and save your loved ones from such experiences.