Beneficiary

The beneficiary is the person that receives money or some other form of assets, usually when someone dies. The person or person may be named as the beneficiary of a life insurance policy or as a beneficiary of a will or trust.


1. Choosing the Beneficiary of Your Life Insurance Policy

Whether you personally take out a life insurance policy or receive one as part of your benefit package at work, it is important to carefully consider who you will choose to receive the proceeds of your life insurance policy upon your death. Many people choose their spouse or their children to be their beneficiaries; some choose charitable organizations and some have even chosen their pets!

Beneficiaries of life insurance policies are able to collect the money without going through probate; the legal process that takes place in court before the estate can be divided. Beneficiaries of life insurance policies only have the life insurance company to deal with; they don't have to go to court at all. Beneficiaries of life insurance policies can often receive the proceeds of the policy within 3 or 4 weeks; assuming all the paperwork is in order and the life insurance company has received all the requested documentation.

Once you do choose the beneficiary of your life insurance policy, it's important to keep this information up-to-date, as circumstances in your life may change and you may want to change the beneficiary. This is easy to do; you simply fill out another form and send it to the life insurance company or give it to the benefits director at your place of employment.

2. Choosing More than One Beneficiary

You want to make sure that the people you intend to receive your life insurance proceeds after your death are indeed the ones that receive the money. You can choose multiple beneficiaries; in fact, this is preferable to simply choosing one beneficiary and then asking that person to see to it that others get a portion of the proceeds. By choosing all your beneficiaries yourself, you can be assured that your life insurance proceeds will be distributed in exactly the way that you want them to be.

When you name more than one person as beneficiary to your life insurance policy, it is important that you ascertain which percentage of the proceeds should go to which individual. For example, you may have 2 children that you want to equally share the proceeds; in this case, you would allocate 50% to one child and 50% to the other. However, there may be a spouse that you would like to allocate 50% to and then equally divide the other 50% to both children, which would mean that you would allocate 50% to your spouse and then 25% to each of your children.

You should be very specific when allocating the proceeds of your life insurance policy to your beneficiaries. Whether you have 2 or 10 beneficiaries, by allocating a certain percentage to each one, there will be no question as to your intentions. The life insurance company will pay the claim as it is written and it is up to you to make sure that that accurately reflects your intentions.

Keep in mind that if you don't designate a certain percentage of your life insurance proceeds to go to each beneficiary, your life insurance company will likely distribute the proceeds equally. This is important to know because if you intend for 10% of your insurance proceeds to go to your church or a charitable organization and the rest to your spouse or child, you must put that in writing or all beneficiaries will share equally.

3. Changing Your Beneficiary

This step is sadly overlooked far too often by people who think they have years left to live and will "get around" to it. However, as stated above, your life insurance company will distribute the proceeds of your policy the way that you have instructed them to; not the way that you intended to instruct them. You should make it a habit to go over any beneficiary designations that you have once a year to make sure that the way it is on paper is still the way that you want your proceeds to be divided in the event of your death.

If you should change your mind about naming someone as beneficiary of your life insurance policy, you don't have to worry that they may be contacted. You simply fill out a new beneficiary designation form, make a copy for your records and see that the appropriate person or agency receives the form. You should never designate someone as a beneficiary because you feel pressured to or keep someone as your beneficiary when you have moved on.

4. Should You Name Your Estate as Beneficiary?

What if you aren't married and don't have any children or anyone that you would like to designate as the beneficiary of your life insurance proceeds? If that is the case, you may opt not to take out a life insurance policy in the first place. However, you may receive one at work as part of your benefit package or you might receive one when you open a checking or savings account. Should you name your estate as the beneficiary of your life insurance proceeds?

You can certainly name your estate as the beneficiary of your life insurance policy but you should be aware of the difference between naming a person as your beneficiary and naming your estate as your beneficiary. Keep in mind, also, that even if you do name your estate as your beneficiary, that you can change that designation at any time; perhaps there will come a time when you would like to name a certain person as the beneficiary of your life insurance proceeds.

In the meantime, when you name your estate as the beneficiary of your life insurance policy, the money then becomes part of your estate upon your death and could be subject to estate taxes. Furthermore, if creditors attempt to get the money owed to them from your estate, the life insurance proceeds may be used to pay debts. Finally, when you name a beneficiary, they are able to get the money from your life insurance policy in a matter of a few weeks; it may take longer for this money to be disbursed when it becomes a part of your estate.

5. What Happens if You Don't Choose a Beneficiary?

Some people erroneously assume that their will automatically takes care of all their financial arrangements upon their death, but your will has no bearing on who will receive your life insurance proceeds. If you do not choose a beneficiary, depending on state laws, your life insurance proceeds may automatically become part of your estate or they could automatically go to your next of kin.

While your next of kin may be your spouse and while you may want your spouse to receive the proceeds of your life insurance, what if you were to die together? While that may be a morbid thought, it is something you may want to consider when naming the beneficiary of your life insurance. While you may not be around to see it, the money you worked so hard to provide may go to a cousin you never even knew existed if you don't choose a beneficiary. That is why it is always best to choose a beneficiary by name and review your beneficiary designations on a regular basis.

6. Be Very Clear when Naming Your Beneficiary

This may seem elementary at first glance, but mistakes can be made if you are not clear enough in your instructions when naming the beneficiary or beneficiaries of your life insurance policy. For example, if you are naming your children as beneficiaries of your policy, name them by name and not as "the children" or "any children born to your name and the name of your spouse." While this may indeed serve your purposes at the time you are filling out the paperwork, things could change radically before you actually pass away.

Although you may not think it would be a problem, suppose you adopted a child years later and forgot about the way you filled out your beneficiary designation? You might just remember that you left the proceeds of your life insurance policy to your children but if your beneficiary designation were worded as in the above example, your adopted child would be excluded. Therefore, it is always best to name your beneficiaries by name so that no one is inadvertently excluded.

7. Filing a Life Insurance Claim when You are the Beneficiary

If you have been named as a beneficiary of someone else's life insurance policy, filling a claim is a rather simple process. Often, the funeral home that handles the service will be glad to file the claim for you, although there is nothing they can do that you can't do yourself. If you have the actual policy, you'll be able to find contact information for the life insurance company within that policy. When you call the life insurance company, let them know of the death of the deceased and let them know that you are the beneficiary. Then ask them what they require in order for you to file a death claim. While state laws vary and different insurance companies have different policies on what documents will satisfy a death claim, you will most certainly need a certified copy of the death certificate.

You may also need to fill out a claim form, which the insurance company will send you upon request. Once you have gathered all the documents they require, make copies of them and send the originals on to the insurance company. Make sure you have sent them exactly what they are asking for so there will be no delay in processing your claim. Feel free to call them in about 2 weeks and ask them the status of your claim. Continue to call them once a week until you have received the proceeds.

8. Paying for the Funeral with Life Insurance

The death of a loved one often happens with no advance warning and along with dealing with a barrage of emotions, we have practical details, such as the funeral to deal with. Funerals can be very expensive and a shock to pay for, especially if no advance plans have been made.

Some funeral homes will take what is called an "assignment" of insurance proceeds to pay for the funeral and/or burial of the deceased. If the deceased had life insurance and the beneficiary is willing to use the proceeds of the life insurance to pay for the funeral, the funeral home may verify all this information with the life insurance company and then have the beneficiary sign a statement that gives the life insurance company permission to pay the funeral home out of the proceeds of the policy. Anything that is left after the funeral expenses have been paid for automatically goes to the beneficiary.

In this case, the funeral home will file the death claim with the insurance company and the beneficiary will need to sign the claim form and the assignment papers. The insurance company will then cut two checks, assuming there is money left over after the funeral expenses have been paid. Not all funeral homes will accept insurance assignments, however, so if you intend to use life insurance proceeds to pay for funeral expenses, it would be wise to make plans before the death occurs, if possible, just to be on the safe side.

9. How to be Your Own Beneficiary

There is a way that you can be your own beneficiary and collect at least a portion of your own life insurance instead of leaving it to others. One example of this is the Viatical Settlement. Generally, a person must be terminally ill and not expected to live more than two years in order to take advantage of this type of settlement. What generally happens is that the policy owner sells his life insurance policy to an investor for a portion of the eventual proceeds. Depending upon the age and condition of the insured, you might expect to receive 50-75% of the proceeds of the life insurance. This can be helpful when the person who is ill needs medical treatment or has another need for the money, especially if he or she has no loved ones to leave the money to. At any rate, Viatical settlements can provide almost immediate funds for the insured at a time when they may need it the most.
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