Top tips on how to choose a life insurance beneficiary.
Although it may seem like one of those “required fields” you could be tempted to glaze over, specifying who will receive the proceeds of your life insurance policy is an important decision. While no one can tell you who your beneficiary should be, there are numerous tips to consider.
Keep the purpose of the policy in mind
You will know why you’re buying life insurance. Is it because your family relies on your income as the breadwinner of the family? Is it because you’re a stay-at-home parent who provides valuable services? Keep this in mind when selecting your life insurance beneficiary.
Know your options
When choosing a beneficiary, there are more options than your spouse and kids. Generally, you can designate any one or more of the following as a beneficiary:
- One person
- Two or more people (you can decide how the benefit is split up)
- The trustee of a trust you’ve established
- A non-profit or charity
- Your estate
Remember to be specific when you name your chosen beneficiaries. If you name “my children” as the beneficiaries and one of them was to die before you do, do you want the other child to get the entire benefit or just half of their share? The more specific, the better.
Avoid designating a minor
Sometimes, it’s hard for a minor to receive life insurance benefits, in which case, the court may have to appoint a guardian to administer the funds. This can be a long process, and one that typically requires multiple court dates. To avoid this, consider setting up a trust or designating an adult you trust to oversee the distribution of the money to the minor.
Keep it up-to-date
One of the most common mistakes life insurance policyholders make is to buy their coverage and then forget about it. Say you’re single and you name your mother as the primary beneficiary, but later on you get married. If you didn’t update your policy, then all the proceeds will still go to your mother.
Life insurance can be complex and difficult to understand at first. If you have any questions about umbrella coverage and how it can help you, contact the team at Tompkins Insurance Agencies for help finding the right solution for your family.