Death can be a gloomy topic, can’t it?
“I would love to chat about who will get my life insurance money when I die!” said no one, ever.
If you fail to name a beneficiary for your life insurance policy, depending on where you live, the payout could go to your estate, where it will likely be heavily taxed.
Overlooking this detail defeats the very purpose of insurance, which is to provide financial security and peace of mind to the recipients.
“The old adage, ‘Hope for the best, but plan for the worst’ is vital to ensuring your loved ones are taken care of in times of stress and uncertainty,” says Derek Richardson, president of the Life and Health Brokerage at AmeriLife.
Fortunately, there is an easy way to avoid this sorrowful scenario: make clear in writing exactly where you want the proceeds of your policy to go, when the time comes.
As you ponder your beneficiary decision, keep these things in mind:
- Life insurance protects those who mean the most to you.
- Even if you do not have a family depending on your income, life insurance can cover final expenses such as your mortgage or funeral arrangements.
Designated survivor
“Make sure the person or organization knows you have made them your beneficiary,” Richardson advises. “Otherwise, your benefits may not be claimed.”
He also suggests you store important documents such as policies and bank account and investment account records in a safe place, “and that someone knows where they are kept in the event of a sudden accident.”
Weighing options
For the purposes of this discussion, we are assuming you have life insurance. If you don’t, that’s a subject for another time.*
When choosing a beneficiary, factor in the following:
- Who could really use the money?
- Are you divorced with children?
- Are you divorced with children and remarried with additional children?
- What are the financial situations of your loved ones?
- Is there a nonprofit or cause you currently support?
Blended families
Take special care in selecting life insurance beneficiaries if you are a member of a blended family.
This concept was widely introduced to America through “The Brady Bunch”, a popular TV sitcom that debuted in 1969. In it, a father of three boys and a mother of three girls marry and reside in Southern California with a live-in housekeeper.
The show’s creator, Sherwood Schwartz, has said that he based it on then-current statistics indicating up to one-third of American families had at least one child from a previous marriage.
In real life, there may be circumstances where it is appropriate for your death benefits go to a previous spouse and children.
Consult a professional
Some of the situations depicted here may be similar to your own. Even so, we strongly suggest you discuss your unique needs with a tax or legal advisor before adding beneficiaries to, or removing them from, your life insurance.
Should you decide to make a beneficiary change, make sure your agent updates your policy immediately. If something happens to you before your agent implements your changes, the original designees will receive your benefits.
Peace of mind
You now know how to choose a life insurance beneficiary.
By leaving the proceeds to people and organizations you cherish, you help ensure loved ones live comfortably and charities carry out their important work.
This knowledge should lift your spirits.
Don’t have life or health insurance and prefer to research the possibilities on your own? Check out Intelliquote, an AmeriLife company.
If you would like to review your beneficiary options with an agent, we can help.
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