When it comes to life insurance, one of the most important policy designations is the beneficiary. You should think carefully about who you want to list as the beneficiaries on your life insurance policy, and make sure that this is reviewed and updated if you ever need to make changes. Here are a few key points to consider when you are designating your beneficiaries:
- Irrevocable vs. Revocable Beneficiaries
A revocable beneficiary can be changed at any time at the discretion and direction of the policyowner. The revocable beneficiary doesn’t have any rights to the policy until the death benefits are paid. An irrevocable beneficiary needs to sign off on any changes that the policyowner would like to make on the policy, irrevocable beneficiaries are usually included in legal agreements, such as a separation agreement. This is a very important part of designating beneficiaries, especially because of the rights that an irrevocable beneficiary have within the policy. Keep this in mind when setting up your beneficiaries.
- Number of Beneficiaries
You can have one or multiple beneficiaries listed on your policy. Each beneficiary can be designated the same or different percentage share of your insurance coverage. You can also change the beneficiaries on your policy whenever you’d like, there are no limitations or cost to changing your beneficiaries (unless you have an irrevocable beneficiary listed, then you’d have to get them to sign off on the beneficiary change).
- Contingent Beneficiaries
If a death benefit was payable under your life insurance policy, the proceeds would be paid to your primary beneficiaries. Usually, if any of the primary beneficiaries are not living at the time it’s payable, it would be split amongst the surviving beneficiaries. If there are no living primary beneficiaries, benefits would be payable to the contingent beneficiaries if you have designated any. If no contingent beneficiaries are listed and there are no living primary beneficiaries, the benefit would be paid to your estate.
- Trustee for Minor Beneficiaries
If one or more of your beneficiaries are minors, make sure you list someone that you trust to look after the funds for your beneficiary. The funds will be paid in your beneficiary’s name, but it will be up to the trustee to use those funds for your beneficiary. If no trustee is named, the funds will be held until your beneficiary is of age.
Keep these in mind next time you set up your beneficiaries or make any changes to the beneficiaries on your policy. That’s what your coverage is for after all!