Your life insurance beneficiary determines who gets the money upon your death, and your will can’t override it

PFI Disclosure 1

What is the point of life insurance? To ensure the financial security of your loved ones if you pass away. You choose the person or people who get your life insurance proceeds, but if you don’t keep them updated, the results can be catastrophic for your family’s money.

If you don’t know what a life insurance beneficiary is or want to find out how to avoid a critical mistake, make sure you understand these vital facts about life insurance beneficiaries.

What is a life insurance beneficiary?

In life insurance, the term life insurance beneficiary is the person who receives a death benefit if the insured individual passes away during the covered term. In other words, if the person with life insurance dies, the beneficiary gets the cash from a life insurance policy.

The entire purpose of life insurance is to give someone money if you die, so it’s important to choose who will get that money, and keep that person up to date. Whether you get life insurance through work or a policy you purchased on your own, the beneficiaries work the same.

You can generally add one or more life insurance beneficiaries. If you put multiple people, you can divide the proceeds evenly or give a specific percentage to each. You can also designate a contingent beneficiary. That’s a fancy way of saying backup beneficiary in the event your chosen beneficiary has also passed away.

If you don’t choose a beneficiary, the policy generally pays out to your estate. That puts the cash up for creditors and lenders who will try to get the money for unpaid debts instead of writing a check directly to your loved ones.

Life insurance beneficiaries are final

If you get divorced, something very common in the United States today, you probably don’t want your ex-wife or ex-husband to get your life insurance payout if something happens to you. However, that very scenario happens quite frequently.

A will or a trust controls what happens to your assets like bank accounts, investments, real estate, and possessions if you pass away. However, life insurance is outside of a will or trust. You have to update your life insurance beneficiaries even if you update your will. Life insurance beneficiaries are final.

Nothing overrides your choices here, so make sure to update your beneficiaries if you have a major life change or change in preferences.

It’s easy to designate or update beneficiaries

My first life insurance came from work in my early 20s. I wasn’t married and didn’t have kids, but life insurance was a completely paid-for benefit from my employer. You can’t beat free! I chose my sister as my life insurance beneficiary at that time.

When I got married, I filled out a form on my company’s intranet to update the beneficiary from my sister to my wife. It took less than five minutes. All I needed was her name, contact information, and optionally her Social Security number for verification.

For your own life insurance outside of work, contact the insurance company for information on making updates. It usually requires a quick form, which may be completed online in some cases.

If you have children or other preferences for where your life insurance money goes, make sure to include them as well. Take a few minutes to update or review your choices if you have any doubts or questions.

Beneficiaries are the most important part of life insurance

Life insurance is meant to protect someone else. You won’t be around to enjoy the proceeds of your own life insurance, should it ever pay out. To make sure your monthly premiums provide your loved ones the benefits you expect, make sure your life beneficiaries are up to date. It’s simple and takes just a few minutes to make sure your loved ones are protected.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Most Popular

To Top