One of the most important decisions you have to take when you buy a life insurance policy is naming the beneficiary. The beneficiary of your life insurance policy receives the proceeds of the policy upon your death. It might not be an easy decision for many of you. It is not always easy to decide who should get the money that your life insurance pays out when you die. Selecting a beneficiary is a very personal decision. You can name one, two or more people, a trust, a charity or your estate. If you don’t choose one, your state’s laws determine who gets it. If you are naming more than one beneficiary, you can designate them as primary and secondary beneficiary. The primary beneficiary is first in line to receive your death benefit. If the primary beneficiary dies before you, a secondary or contingent beneficiary is the next in line.
The most important factor you must consider in naming a beneficiary is exactly who would get the most benefit out of your life insurance policy. Generally it is your spouse or your children but it can even be a charity. Since most life insurance policies allow for more than one beneficiary, you can have several beneficiaries receiving a portion of your life insurance benefits. You should study the benefits and potential drawbacks of your potential beneficiaries. You have to also take care that you don’t leave out someone who would have been a better choice. Ask yourself these questions: Who will need extra money when you pass away? Are there people that count on you for financial support? People who will bear certain expenses at your death? The answers to these questions will help you in deciding the beneficiaries to your life insurance policy. Funeral expenses can burden your family financially. Think of the best person who can be put in charge of making sure that your bills are covered and that all of your funeral expenses are paid. Your state or even your life insurance policy may restrict who you can name as a beneficiary.
It is a good idea to talk to the person(s) whom you will be naming as the beneficiary of your life insurance policy. They must be comfortable with the idea. When designating a beneficiary, you should specifically name the individual and indicate the portion of the proceeds s/he is to receive. Choosing your estate as the beneficiary of your life insurance policy can result in heavy taxes and your creditors can seize the funds to cover your debts.
