Designation of a life insurance beneficiary is one of the few decisions in the rules-driven insurance application and approval process that is completely under your control. Your beneficiary choice is solely at your discretion, unfettered by any restrictions from the insurer. While most policyholders generally purchase life insurance to fulfill a financial responsibility and the desire to protect loved ones, the decision of whom to leave the money is entirely in their hands.
Although your heart might be in the right place in wanting to name a minor child, it is the only restriction insurers impose on life insurance beneficiary designations. Some companies will not allow you to name them in the policy directly.
If you don’t have a beneficiary designated to receive your life insurance proceeds, your estate automatically becomes the beneficiary upon your death. Estate planners do not recommend this as a general rule for tax reasons, but also because your heirs will have to wait out the tedious probate process of settling your debts, and likely lose a chunk of the payout to creditors. That is why financial experts caution you to choose a person(s) as named beneficiaries in a policy and keep insurance proceeds out of the hands of the courts.
Listing “husband,” “wife” or “spouse” as your beneficiary is not going to cut it. This is a legal contract between you and the insurer that the carrier must honor by paying the right person after your death. The life insurance beneficiary designation in your policy even supersedes your Last Will and Testament. Avoid future court fights between an Ex and a current spouse by naming beneficiary names in your life insurance designation form. In addition to the person’s contact information, you must also list their DOB and Social Security Number.
Distribution methods you can specify in your policy to specify how you want to divide the death benefit among more than one beneficiary:
The most important thing to remember in this whole explanation of how and why to designate a life insurance beneficiary is that you have power and control over your choices. However, don’t take it for granted.
You are investing good money to protect the future of the people to whom you will leave this financial legacy. Make sure they are prepared with the knowledge and the information they will need to someday truly benefit from this gesture of love.
Need help? Contact your insurance professional today to discuss your specific needs.