A life insurance policy is an essential part of a solid financial plan, but getting covered is only one part of the decision. You should also carefully consider your options for selecting a life insurance beneficiary—the person or entity that gets your death benefits. Think about these tips as you select the best beneficiary for your needs.
1. A beneficiary doesn’t have to be a person
Naming your spouse or child are obvious choices, but you could also select a trust or charity. For example, if you’re a single parent and your children are under 18, you may want to name a trust as the beneficiary because individuals can’t receive funds until they are 18 (or 21, depending on where you live). Once they are old enough to be beneficiaries, you can alter your policy and name them directly. Naming a charity as your beneficiary extends your goodwill even after death.
2. Designate primary and contingent beneficiaries
There are two main types of life insurance beneficiaries:
- Primary—the initial recipient of your policy assets
- Contingent—the secondary recipient of your policy assets, if the initial person has died or can’t be located
Consider designating both kinds because it can help ensure that benefits don’t go to your estate, where they could be subject to legal proceedings and claims from creditors. If both the primary and contingent beneficiaries are alive, only the primary will receive benefits. Note: Naming contingent beneficiaries is not the same as designating multiple primary beneficiaries.
3. You can have multiple primary beneficiaries
Your life insurance beneficiary can be more than one person or entity. If you’d like to leave assets to multiple children or grandchildren, or several charities and trusts, you can request that your life insurance policy benefits be divided among all of them.