When you sign up for life insurance, you can name a beneficiary who will receive the proceeds of your policy. Your choice is important: not only should it be someone who can continue to help support your family financially but also someone who shares your values. However, there are other factors that go into choosing a beneficiary that are often overlooked. In this guide, we’ll cover everything from how to choose a beneficiary properly to what happens if the person changes or dies before you do.
Who is a beneficiary?
A beneficiary is a person or entity that receives money from a life insurance policy after the insured person dies. A beneficiary can be a person and/or an organization. If you choose to designate your beneficiaries, they will receive the payment from your life insurance policy when you pass away.
As per the experts at Ethos, “Your beneficiaries do not have to be listed in order of priority.” However, if there is more than one person named as a beneficiary on your policy, then all of those individuals must agree on how to distribute their portion of the money if it becomes necessary for them to do so (for example, if multiple people are listed as primary beneficiaries).
When Can A Beneficiary Be Changed?
The main question here is whether the policy is in force or not. If it’s in force, you can change the beneficiary during its term. But if it’s not in force, then you can only change the beneficiary after it has been revived.
What this means is that if you make any changes to your policy at all—including changing the beneficiary—before your policy comes into effect, then your new coverage will never be activated, and you won’t receive any benefits from it.
Why Should I change the beneficiary on my life insurance policy?
You should consider changing the beneficiary on your life insurance policy if:
- The beneficiary is not the right person. For example, if you have a child and have listed your spouse as the beneficiary—but you’ve divorced, remarried and now have three of your own children—you will want to change that designation.
- You would like to name someone who will use the money wisely and in accordance with your wishes. This may be especially true if you are not married and do not want specific funds going towards anything other than funeral expenses or debt repayment (e.g., student loans).
- You would like to use cash value life insurance funds for another purpose than originally intended when purchasing the policy, such as paying down mortgage debt or college tuition expenses for one of your children.
Top factors to consider before choosing a beneficiary
Before you begin the allocation beneficiary process, here is what you must consider:
- The beneficiary is the person or organization that you want to receive your life insurance payout.
- You can change your beneficiary at any time, so you may want to revisit this decision in the future.
- It’s important to choose a beneficiary who will use the money for a good cause.
- Your chosen beneficiary should also be trustworthy and reliable so that they can act on behalf of your family if something happens to you unexpectedly.
In conclusion, your life insurance policy is a very important document. It’s something that can give you peace of mind and help you plan for the future. But it’s not just about your own well-being—it’s also about the people who depend on you. That’s why choosing a beneficiary is such an important step in protecting your loved ones and making sure they will take care of themselves after your death.