When purchasing a life insurance policy, the biggest consideration you’ll have is who to name as your beneficiaries. There are a lot of scenarios to think about. Should the benefit go to a family member who will need it the most? If you name your spouse, who you name as secondary?
A couple of considerations:
– Be sure to name at least one beneficiary. Otherwise, the funds could be tied up in probate.
– Choose at least one primary beneficiary as well as a contingent or secondary beneficiary in the event your primary dies.
– Communicate your intentions with beneficiaries. Let someone know you have a life insurance policy and tell them where they can find it.
– You can change your legal beneficiaries at any time. Update it as appropriate.
Designating Your Beneficiaries
Keep it all in the family – Many people base their choice of family beneficiaries upon who will need the money most. An obvious designee is the spouse or domestic partner. Primary and contingent beneficiaries can also be children, siblings, parents or any other family member. If you prefer, you can designate a branch of the family and the proceeds will be shared equally among the beneficiaries and their surviving children.
It’s a minor issue – If a beneficiary of choice is minor, you can appoint a legal guardian who will distribute the proceeds to when the designee reaches the state’s legal age. You’ll want to name a legal guardian if you choose to set up a formal trust.
Estate your case – Rather than naming a designee by name you can choose to make your estate the beneficiary. In this arrangement the funds will go to the executor of the estate, designated in your last will and testament. Discuss the tax implications with your accountant or financial advisor before going this route.
Be charitable – If you don’t have a family member, friend or other individual you would like to receive your death benefit, consider naming your favorite charity or college as your primary or contingent beneficiary. This is a good option if you want to donate a large amount to the organization but are unable to do so in your lifetime.
There are a lot of legal ramifications to consider when determining who will be beneficiaries of your life insurance. Whoever you decide to name, it’s best to get some guidance from an insurance of financial advisor.
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