We purchase life insurance coverage to ensure our loved ones are taken care of financially.
However, no one tells you who you should name as the beneficiary of your life insurance policy.
In some cases, choosing a beneficiary is simple. For example, you may intend to leave the
whole amount of the policy to your spouse or your children. It is important to be aware of a
multitude of factors in choosing your beneficiary to ensure a smooth transition and to protect the
interests of the intended recipients.
1. Who Can Be Designated as a Beneficiary on My Life
Any person, related or otherwise, can be named as a beneficiary under your policy. In
addition, you may name a business, charity, or trust as the beneficiary. When choosing
your beneficiary, think about what the purpose of purchasing the life insurance policy
was in the first place.
Let’s say your goal is to provide your adult grandchildren with financial stability, but you
know your only child, one of their parents, is not great at managing money (even after
you paid for that business school degree). Naming your only child as the sole
beneficiary of your life insurance policy may not be the best way to accomplish your
Be careful about naming a minor as a beneficiary of a policy. In many cases, the child
will not be able to access the money until they are of legal age, and state regulations
and courts can limit how much of the funds will go to the intended beneficiary. This
process can be lengthy and invite the unwanted influence of other adults upon what
should be a straightforward process.
One solution is to create a trust in the name of the child and designate a trustee to follow
your instructions in the administration of the trust. Think of it as an opportunity to tell
someone what to do.
Know also that your life insurance policy can have multiple beneficiaries, and the
percentage of the death benefit each receives can vary. Another opportunity to continue
telling your family or friends what to do.
2. What Happens if the Primary Beneficiary is Unavailable to
Receive the Death Benefit?
By the time we are mature enough to know and have the funds to provide life insurance
benefits for our loved ones, we understand that life happens and circumstances change.
No one likes to think about their loved one passing before them, but it is a possibility and
one that must be acknowledged in naming your beneficiary or beneficiaries.
For this reason, you should always name a secondary beneficiary. A secondary, or
contingent, the beneficiary receives the money in the case that the primary beneficiary
If none of the named beneficiaries are unavailable, the life insurance proceeds will go to
your estate. Your estate will be dispersed by a probate court, which can be a lengthy
and expensive process for the remaining of your loved ones who will eventually inherit.
In order to avoid this, it is important to make sure that you name contingent
3. Keep Your Life Insurance Policy and Intended Beneficiaries
From time to time family situations change. Marriages, divorces, births, deaths, as well
as personal issues, can alter the nature and structure of your relationships. Many
people purchase a life insurance policy and forget about it, assuming that their family will
be taken care of from it.
You should constantly be updating your life insurance policy as your life situation
changes. Often, a spouse from a second marriage or a last born grandchild is
accidentally left out from receiving money under the policy.
You must update the beneficiaries of your life insurance policy to ensure that the money
reaches the people you want it to reach. If there is a conflict between your will and the
named beneficiaries on your life insurance policy, the life insurance policy will govern
who gets the money. For this reason, it is important to periodically check and update
your life insurance policy as your intentions change.
Additional Factors to Consider when Choosing a Life Insurance
The Effect of Receipt of Life Insurance Benefits on SSI and Medicaid
If your intended beneficiary relies on any sort of income-based assistance and will continue to
rely on it after your death, you should take the amount of money they will receive into
consideration. If the money from the life insurance policy increases their income over a
threshold, your gift could disqualify them from being eligible to receive Supplemental Security
Income (SSI) and/or Medicaid. ‘
State Law Governs Spousal Rights to Life Insurance Benefits
You should also be aware of any state laws that will affect how your beneficiaries receive
money. In some states, a spouse is required to sign off on any beneficiary, while in other states
there are no such restrictions. In those states, you could put your life insurance policy in the
name of anyone – even if your spouse does not know that person.
Speak With a Professional to Ensure Your Goals Will Be Met
Naming a life insurance beneficiary seems like a simple process and oftentimes, it is. You
should, however, be aware of the factors that can affect how efficiently and effectively this
money is disbursed to your intended beneficiaries. The purpose of life insurance is to continue
taking care of those we care about, even after we are not physically with them. You may wish
to speak with an insurance professional about your specific situation to ensure that the intended
outcome is reached.
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with national life insurance beneficiary attorney Chad W. Boonswang, Esq.