Understanding Life Insurance Beneficiaries

05 Mar Understanding Life Insurance Beneficiaries

One of the most important decisions when purchasing life insurance is selecting your beneficiary. The beneficiary is the person or entity who will receive the death benefit from your policy in the event of your passing. This decision can have significant financial and emotional implications, so it is crucial to understand how life insurance beneficiaries work.

Let’s check out the process of choosing and managing your life insurance beneficiary.

What Is a Life Insurance Beneficiary?

A life insurance beneficiary is the individual, organization, or entity designated to receive your life insurance policy payout when you pass away. Beneficiaries are named in your policy documents and can be anyone you choose, including family members, friends, or charitable organizations. The beneficiary will receive the death benefit, which can cover expenses like funeral costs, debts, or daily living expenses or be invested as they see fit.

Types of Life Insurance Beneficiaries

There are two main types of beneficiaries you can designate in your life insurance policy:

• Primary Beneficiary: The first in line to receive the death benefit. You can choose one or multiple primary beneficiaries with specified percentages.
• Contingent Beneficiary: This person receives the payout only if the primary beneficiary cannot accept it, such as in the case of their death.

You can assign multiple beneficiaries for different purposes, like covering specific expenses or supporting a charity.

Choosing Your Life Insurance Beneficiary

Choosing a life insurance beneficiary is personal and should be based on the following considerations:

• Financial Dependents: If you have children or a spouse who depend on your income, they should be your primary beneficiaries.
• Trustworthiness: Choose someone responsible for managing the funds. If necessary, set up a trust if the beneficiary is a minor or unable to manage the money.
• Tax Implications: While life insurance payouts are usually tax-free, estate taxes may apply depending on the size of your estate. Consult a financial planner to understand the potential tax consequences.

Changing Your Beneficiary

Life events such as marriage, divorce, or the birth of a child may require you to update your beneficiary. Reviewing and revising your beneficiary designation regularly is essential to ensure it reflects your current wishes. If you need to make changes, contact your life insurance provider to request a change of beneficiary form.

Know the Importance of a Well-Thought-Out Beneficiary Decision with Us

Choosing a life insurance beneficiary is an important decision that requires careful consideration. It ensures that your loved ones are cared for and your final wishes are honored.

At Kevin S. Dougherty Insurance Agency, our team will help you through choosing the correct beneficiary and provide advice on managing your life insurance policy. Contact us today or call (630) 575-0800 to make sure your life insurance is set up to benefit those you care about most.