A guide to naming life insurance beneficiaries

Hands surrounding family

June 5, 2015

Being a beneficiary is historically something of a doubled edged sword. On the one hand you’re in line to receive a cash windfall sometime in the future; which is obviously something to look forward to.

Yet on the other hand, it’s normally resultant on someone very close to you passing away. While not nearly as upsetting as the aforementioned end game being played out, it’s often complicated deliberating over and ultimately working out just who you wish the beneficiaries of your estate to be.

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Admittedly, for many it’s a simple choice – their partner and/or offspring. But what if you don’t have either in the run-up to you shuffling off this mortal coil? That’s when you really have to put your thinking cap on.

Traditionally the naming of beneficiaries is amongst the very first things you’re instructed to do when drawing up and purchasing a life insurance policy, where the insurance provider will request that you submit a person (or persons/entity) who will eventually receive the cash benefit from your policy in the event of your demise.

The problem often arises though where potential policyholders are flummoxed when it comes to naming their beneficiaries.

So, just who, or indeed, what can be nominated as beneficiaries on your life insurance policy?

For a start you can name more than one person (which is a sure-fire way of avoid sibling squabbles if you have 2.4 kids), or wish to leave your worldly wealth (or more specifically, the amount hitherto accrued on your life insurance policy which has been accumulating all the while in the background as you go about living your life) to both your wife/partner and children, equally.

But as we hinted earlier, for those of us who haven’t provided 2.4 children you’ll need to come up with an alternative beneficiary. As opposed to this, you could always set up a trust, with the proceeds from which governed by an elected trustee of your own opting, cite a charitable organisation to benefit or just leave it to your estate (as per your conventional last will and testament).

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If you can’t designate one clear beneficiary of your life insurance then the law will decide who receives your death benefit.

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Always try to prioritise financial interests of your dependants when compiling life insurance beneficiary lists

Once this is established, you have to put the beneficiaries in some semblance of order, for reasons which become clear in the next sentence. The primary beneficiary is qualified as the first in line to receive your death benefit (for want of a better description), however if he/she dies before you do, a secondary or contingent beneficiary welcomes the monetary gain.

It’s not unusual for some people arranging their life insurance to list what’s referred to as a final beneficiary too, should the previous two incumbents meet with their deaths however improbable and dark that may sound.

Just how you individually choose who acts as your beneficiary is entirely in the eye of the beholder, and is acknowledged to be a very personal decision which isn’t always as obvious as it might appear to be from the outside.

Predominantly people wish to protect their nearest and dearest and ensure that their loved ones are provided for (as much they can be) after a death, whereas others may view it as more of a financial transaction and earmark it for, arguably, more deserving cases (in the event of their dependents being well catered for in other areas).

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From the life insurance policyholder’s perspective, you must figure out who might need the money most? Which people count on your financial support the most? And which people will be responsible for bearing the brunt of death-related expenses? All these are very good starting points to help you ascertain the definitive beneficiaries from the outset.

Don’t fret it you wish to change any beneficiaries at a later date either, because as with most insurance products you can almost always make amendments at any time.

In fact, life insurance experts and commentators are quick to suggest that we routinely review and appraise our existing policies, never more so when life itself enforces changes to the continuum; such as those presented by the advent of marriage, births and family upheavals and relocations for example.

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