What Is A Beneficiary?

What is a beneficiary? You can designate what portion of your policy goes to each beneficiary in order to suit the individual family needs. Every life insurance policy, whether it is term, whole life, universal...

Every life insurance policy, whether it is term, whole life, universal life, or some other type of life insurance, has a beneficiary. Joe Sostarich, a 26-year veteran of life insurance sales tells us, "The beneficiary is the person or persons who receive the proceeds of a life insurance policy after the insured dies." You might think that it would be simple to choose a beneficiary and it might very well be, but there are many scenarios to consider. A beneficiary could be one person or many people who will split the proceeds.


When you word your insurance policy, it is very important to be as specific as possible when designating a beneficiary. The whole name of the person should always be included as well as their social security number to make locating the person easier for attorneys after your death. Many people choose their spouse to be the beneficiary of their insurance policy. People want to make sure that their spouse is taken care of in the event of their death and loss of their income. If you decide to make your spouse a beneficiary to your policy you need to specifically include your spouse's full name in the policy. Simply saying that you want your wife to be the beneficiary could cause problems down the road if you should happen to remarry or if this is your second marriage. An ex-wife could try to claim the proceeds of the policy and may have the legal right to do so.




Many people decide to leave their policy to their children. Life insurance policies can make it possible for children to go to college and be taken care of if one of their parents dies. You can designate what portion of your policy goes to each beneficiary in order to suit the individual family needs. If an insured were to die before his children were old enough to receive the proceeds the money would be put into a trust fund until they were of age. An insured might choose to have an adult who will be caring for his children to be the beneficiary so that they can use the money immediately to take care of the children.

A beneficiary does not have to be a family member. Joe says, "A beneficiary of a life insurance policy could be a charity or organization that the insured wants to support." Some people who do not have family members that they want to take care of may decide to leave all of the proceeds to their church or a favorite cause.

A beneficiary could also be a trustee if you have a life insurance trust policy. A trustee is usually a bank or a professional trust association that administers your trust. The reason that you might leave your policy to a trustee is that the money can then be distributed to your family without them having to pay an estate tax on the money. There are no estate taxes on the money because it is never officially owned by the insured.

Whomever you choose as the beneficiary of your life insurance policy, it is a good idea to include a backup beneficiary in case of the death of a beneficiary or the disbandment of an organization you have designated as a beneficiary.

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