When you choose to take out a life insurance policy, one of the most important steps in the process is choosing a beneficiary who would receive the benefit if you die. While it may seem straightforward, the process for choosing a beneficiary for your life insurance policy can be challenging. Understanding how your policy works – and the specifics surrounding beneficiary selection – can often help you narrow down your options.
Read on to learn more about how to best choose a beneficiary for your life insurance policy!
Questions to Ask Yourself
Why Am I Getting a Life Insurance Policy?
The most important factor that goes into choosing your beneficiary for your life insurance policy is the reason you’re establishing the policy in the first place! Are you trying to help your family cover expenses following the loss of your income? Perhaps you simply want to make sure your children will be able to transition into a life without you with one less worry over their head.
Whatever the reason, it often plays the biggest role in helping you understand who the ideal beneficiary for your policy will be. Think about your goals, and who would benefit from the policy most to satisfy your goals if you ever were to pass unexpectedly. In some cases, this may be all you need to do to decide who the ideal beneficiary would be for you.
Who are My Reasonable Choices for Beneficiaries?
Of course, even if you have a clear understanding of why you’re getting your policy, there may be multiple people who you could select as your beneficiary. Commonly, spouses or children are selected, as they most rely on your income or other assistance throughout life. But it may be someone else – a family member, a neighbor or another member of your community!
Your life is unique, which means the circumstances that surround the selection of your beneficiary won’t always be the “common” choices. Make a list of the people who make the most sense given the reason for your policy and consider them all equally. The simplest choice may not always be the right one.
Who Would Be Your “Backup” Choice?
The beneficiary of your life insurance policy may not be in a position to receive the proceeds associated with the policy following your passing. They may be unable to be located, they could refuse the proceeds, or they may have passed already. It’s a circumstance that happens more often than you might believe, and it can cause an issue with your life insurance policy if you don’t plan for it.
When building a list of appropriate life insurance policy beneficiaries, think of who a reasonable alternative to your primary choice or choices might be. Knowing in advance who would be an alternative choice means you can update your policy or plan for it ahead of time, which can prevent significant problems from occurring down the road.
Tips for Avoiding Issues When Choosing a Beneficiary
Selecting a Minor Comes with Additional Considerations
Many parents take out life insurance policies when they have children. It’s only natural to assume that your children, then, would be ideal beneficiaries. While there’s no inherent problem with selecting your children as beneficiaries, it’s important to remember the additional legislation surrounding a minor receiving the money from a life insurance policy.
Life insurance providers will not directly release a policy payout to children under the age of 18. If you select a minor as your beneficiary, in the event of your death, the decision on how to handle the proceeds will be made by the probate court. This often involves a custodian being granted the funds to manage on behalf of the minor. If this would be a concern for you, it may be best to assign the beneficiary directly to a trusted individual, like their other parent, a close relative, or anyone else you trust.
Life Insurance Policies Can Have More Than 1 Beneficiary
When choosing a beneficiary for your life insurance policy, it may make the most sense to select multiple people. There’s no issue with choosing two or more beneficiaries – and for parents of multiple children or with close family, it’s often the right plan.
You can use your list of choices to narrow down multiple beneficiaries and name them all.
Don’t Use Your Will to Handle Life Insurance Proceeds
Make sure your beneficiaries are named in your life insurance policy and not just in a will. A life insurance policy will only pay out to the specific beneficiaries listed – it’s not dictated by your will unless the beneficiaries listed are unable to accept the proceeds, which would lead the proceeds to be distributed to your estate.
Contact Iott Insurance for a Quote Today
Iott Insurance has been a part of southeast Michigan for over 50 years. We can help you plan your insurance needs and find you the right policies or plans to protect you.
Or you can visit one of our three offices in southeast Michigan:
Blissfield, MI – (517) 628-4574
Lambertville, MI – (734) 807-3825
Petersburg, MI – (734) 215-9884
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