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November 19, 2021How to Choose & Claim a Life Insurance Policy Beneficiary?
How to Choose a Life Insurance Beneficiary and How to Claim the Policy
When you buy a life insurance policy, you'll be offered the option of naming one or more beneficiaries to receive a death benefit if you die. There are essentially no regulations that limit who you can choose.
Furthermore, if you get divorced, you may easily alter your beneficiary. The only actual restriction is for children, who must be designated as the beneficiary by a trust or legal guardian in order to receive the death benefit.
You can name anybody as a beneficiary as long as you tell them and give them a copy of your life insurance policy. Otherwise, they may not be aware of the need to submit a claim or may be unable to do so when the time comes.
Choosing A Beneficiary For Life Insurance
Aside from children, insurers have no restrictions on who you can name as a beneficiary. Furthermore, life insurance beneficiaries are distinct from those named in your will, so the two lists do not have to overlap, though they definitely can.
A person, charity, corporation, or trust can all be beneficiaries. If the beneficiary is a person, they might be a relative, a kid, a spouse, a friend, or anybody else you know. As some brokers like to joke, you may even designate your "secret lover" as a beneficiary on your life insurance policy.
There are normally life insurance beneficiary restrictions in these states that require your spouse to surrender their rights if you want to choose someone else as a beneficiary.
While it is not a legal or insurance requirement, we recommend that the policy owner, the person covered, and the beneficiary do not all exist as different organizations. This is because the IRS may see any proceeds from the death of the insured as a gift from the policy owner to the beneficiary, which means they might be taxed.
Similarly, we do not recommend that you appoint a creditor as the beneficiary of your life insurance policy, as is frequent with credit life insurance policies. Instead, name the beneficiary as the individual who will pay the loan.
For example, by naming your spouse as the beneficiary, they can choose whether to spend the death benefit to pay off the mortgage (and keep living in the property) or to cover a more important need.
What Happens If You Don't Name A Beneficiary On Your Life Insurance Policy?
If you do not name a beneficiary for your life insurance policy, or if all of your beneficiaries die before you, your estate becomes the beneficiary.
This implies that the profits of your life insurance are subject to estate probate, a lengthy legal procedure in which your obligations are paid and your estate is split.
We advocate naming beneficiaries and maintaining the list up to date because estate probate can take months and creditors can come for the life insurance death payment.
Otherwise, your family may not get funds when they are needed (for example, to cover your burial expenses), or their payment may be decreased. This is also why, while you can identify your estate as a beneficiary, we do not advise you to do so.
How To Name A Beneficiary For Life Insurance
Once you've decided who you want as your beneficiaries, fill out the life insurance beneficiary designation form with their information. A beneficiary designation form is a legal document that the insurer will use to identify who will get the death benefit if you die during the term of the policy (as well as how much they will receive).
This designation supersedes any other estate planning you may have, such as a will, so be sure the beneficiaries designated are individuals you genuinely want to benefit from your assets.
Beneficiaries are often divided into two categories: main and dependent. The main beneficiary is your first option to receive the death benefit if you die. A contingent beneficiary is a backup; they are the person you want to get the payout if the primary beneficiary also dies.
So, if your husband is your primary beneficiary and you both die in a vehicle accident, the death benefit would be paid to the dependent beneficiary.
It is critical to be explicit when choosing a beneficiary; otherwise, you may wind up with disagreements among your loved ones. For example, just writing "husband" or "wife" on a life insurance policy might lead to complications if you split and remarry.
The information required varies depending on the entity identified as a beneficiary, but for a person, you'll need the following:
•Name in full
•Postal Code (street address, city, state, zip code, country)
•Telephone number (s)
•SSN (Social Security Number)
•The birth dates
If you have numerous life insurance beneficiaries, you can assign the death benefit to each of them in one of three ways:
Particular Percentage
According to Stirpes
In terms of population
Each beneficiary is designated and a percentage of the death benefit is allotted to them.
Each segment (or branch) of the family receives an equal share of the death benefit.
Each individual who is qualified for a payment receives an equal share of the death benefit.
Your beneficiaries are your two children, Bart and Lisa. Lisa would receive 50% of the settlement, while Bart would receive 50%. If Bart died before you, Lisa would be entitled to the entire settlement.
Bart has four children and passes away before you. Lisa would receive 50% of the payoff, while each of Bart's children would receive 12.5%.
Bart has four children and passes away before you. Lisa would receive 20% of the settlement, while each of Bart's children would receive 20%.
While you can set a financial sum to each recipient, we do not encourage it. Many plans' values fluctuate over time, and you don't want to leave money on the table.
You can also indicate whether the life insurance profits should be paid out in a single amount or in monthly installments to a beneficiary. This option is usually used if your beneficiary is a teenager or if you don't trust them to spend a significant sum of money wisely.
How To Make A Child Or Dependent The Beneficiary Of A Life Insurance Policy
Some insurers will not allow you to explicitly identify a minor as a life insurance beneficiary if the intended recipient is a minor. In these instances, you have two options:
•Assign a beneficiary to their legal guardian.
•Use the Uniform Transfers to Minors Act to appoint a custodian for the profits. This individual is then designated as the beneficiary.
• Make a trust for the child and name the youngster as the trust's beneficiary. This has the extra benefit of allowing you to define when the trust profits should be released and what they can be used for (for example, education expenses).
If your intended recipient is a long-term dependent, such as a disabled family member, you should set up a trust for them as well, even if they are not a child. They may be excluded from Medicaid and Supplemental Security Income if they receive more than $2,000 in inheritance.
You can avoid this problem by naming a trust as your beneficiary, and the trustee will administer the distribution on your family member's behalf.
How To Change The Beneficiary Of A Life Insurance Policy
It is simple to change your beneficiary. Simply get a beneficiary change form from your life insurance provider, fill it out, and submit it to them.
The only time this procedure becomes complicated is when there are irrevocable beneficiaries. Without their express approval, you cannot remove or amend the designated payment for irreversible beneficiaries. This is in contrast to revocable beneficiaries, whom you may remove or change the payment of at any time.
It might be tough to have irrevocable beneficiaries if you get divorced and require your ex-permission wives to modify how your life insurance payouts are paid out. When you fill out a designated beneficiary form, it will state if the beneficiaries are irrevocable or revocable, so double-check.
The majority of situations involving a challenged life insurance beneficiary include divorce (the former spouse was not removed from the policy) or modifications made shortly before death (predatory person convinced senior to make them sole beneficiary).
This is why we advocate maintaining your beneficiary list up to date and constantly alerting your family of any changes. The purpose of having life insurance is to offer financial security to individuals you care about, and you don't want the proceeds to be locked up in court for years.
The only time you won't be allowed to alter a beneficiary is if you're judged legally incapable.
How Can A Life Insurance Policies Beneficiaries Make A Claim?
In order for your beneficiary to lodge a death claim under your life insurance policy, they will require the following information:
•The death certificate you have
•The policy of life insurance (or a copy)
•A form for submitting claims (from the insurer)
•The death certificate of the principal beneficiary (if contingent beneficiary)
If you have numerous beneficiaries, each must file a separate claim with the insurer in order to get their share of the profits.
Ensure that each of your beneficiaries receives a copy of your life insurance policy as well as contact information for the insurer. You may also wish to provide them access to your life insurance account if the insurer offers an online portal, as well as your premium payment data.
This eliminates the possibility of a disagreement between your beneficiary and the insurer about whether coverage was in effect at the time of your death.
Once a life insurance claim is made, the insurer will analyze it and pay the death benefit if there are no problems with the application. It might take anywhere from a few days to several weeks to pay out life insurance beneficiaries.
While there are several options for searching for unclaimed life insurance policies, these are usually limited by the insurer or the state. So, take the time to properly tell your beneficiaries, or you might end up paying thousands of dollars in premiums for no benefit to your loved ones.