Life Insurance Beneficiaries: How to Protect Your Loved Ones

by Cristy Lynch | May 31, 2018

Life insurance is probably at the top of the list of uncomfortable topics to think about. So talking about it with your loved ones? That is a conversation most people

Life insurance is probably at the top of the list of uncomfortable topics to think about. So talking about it with your loved ones? That is a conversation most people want to avoid.

Life insurance and beneficiaries go hand in hand. If you’re like most Americans, you probably don’t start thinking about life insurance until you start a family. After all, you want to take care of them should something happen to you. Naming your loved ones as beneficiaries is as easy as that, right? Well, sometimes…

Here’s what you need to know about designating a life insurance beneficiary.

What is a Beneficiary?

Simply put, a beneficiary is the named person (or entity) who will receive the life insurance benefit. You can designate one person or several. Today we’ll keep it simple and just talk about people.

There are two types of beneficiaries:

Primary Beneficiary

Who is first in line to receive the payout (aka life insurance benefit)?

Contingent Beneficiary

Also commonly referred to as a secondary beneficiary or alternate. Who should receive the payout if the primary beneficiary passes away before or at the same time as you, the policyholder?

Important! If you’d like to name more than one person to receive the payout (like your children), name them all as your primary beneficiaries. You can choose to distribute the benefit equally or allocate portions.

Who Can You Designate As a Beneficiary?

Spouses, children, aging parents — you can name pretty much anyone as your beneficiary. That is, anyone with an insurable interest, meaning that they would suffer a financial, emotional, or any other type of loss because of the death of the person insured.

Your life insurance company may have restrictions on who you can designate as a beneficiary on your policy, so always check with your agent for details (if you’re a Bestow policyholder, don’t hesitate to reach out to a Customer Care Advisor).

What Happens If I Don’t Designate a Beneficiary?

You named a beneficiary at the time you purchased your policy. However, sometimes there is no primary or contingent beneficiary to receive the payout. In that case, then the benefit is very likely paid out “per stirpes” and distributed to your heirs accordingly.

Think of a per stirpes distribution like branches of a family tree. Each heir is entitled to one share, which equals one branch.

For example, a grandparent, George, passes away and bestows his estate to his two adult children: Jack and Jane.

Jack and Jane are two branches of the family tree. Each are entitled to one share of George’s estate. If both Jack and Jane are still living, it’s as simple as that.

Let’s say that Jane passed away before her father George. Her two children (George’s grandchildren) would each be entitled to Jane’s branch divided equally. So her two children receive one-half of Jane’s share each.

Since Jack is still living, his children would not receive any shares.

Ok, I Designated Beneficiaries. Now What?

You’ve bought coverage, and you’re riding that wave of confidence as you pat yourself on the back for protecting your family’s financial future. Don’t forget the final step: Tell your beneficiary about the gift you’ve given them! Provide them a copy of your policy document so that they can contact the insurance company to file a claim and receive their benefit without much delay.

And keep your life insurance company in the loop. As your life changes, so may your beneficiaries. Review your designated beneficiaries at least once a year to make sure everything is up to date, including contact information for you and your beneficiaries. This is especially important if you move, get married, divorced, start a family, or if your primary beneficiary passes away.

In summary, the reason you’re buying a life insurance policy is to protect the financial futures of your loved ones, so make receiving the benefit as seamless as possible.