Obviously one of the most important aspects of your insurance policies is your beneficiary designations. That’s because these policies are put in place to protect those people. So ensuring you understand the different types of beneficiaries and the implications of the beneficiary designations is crucial to ensuring your policies are protecting your chosen beneficiaries.
Failing to name any beneficiary at all will name your estate as your beneficiary of an insurance policy. When insurance proceeds are paid to your estate, the proceeds will be included in your estate for probate. When a policy is paid directly to a beneficiary the proceeds bypass probate and are paid completely tax free to your beneficiary.
So, the first and most important type of beneficiary is Primary Beneficiary. There can be multiple primary beneficiaries, and these are the beneficiaries that the benefit is payable when you pass away.
Contingent or Secondary Beneficiaries are who you name as beneficiary in the event that at the time the proceeds are payable all of your primary beneficiaries are no longer living. This could be because you and your primary beneficiary passed away at the same time, or you forgot to update your beneficiaries.
Minor beneficiaries can be named, but it’s important that you list a Trustee for the minor beneficiary. This is the person who you name to be responsible for those funds until the minor beneficiary reaches the age of majority.
You can make your primary beneficiaries revocable or irrevocable. An irrevocable beneficiary will have rights to your policy and will have to sign off any changes you would like to make to your policy, a revocable beneficiary does not have these rights.
Make sure you sit down with your advisor, review your policies and update your beneficiaries when changes need to be made so that they remain up to date with your current situation.