Choosing a Life Insurance Beneficiary

by @Brad_Cummins

Choosing a life insurance beneficiary is not difficult if you understand what a beneficiary is.  In this chapter of our buyer’s guide, we will explain the difference between a primary beneficiary vs contingent beneficiary. As well as what happens when you name a minor as your beneficiary (child under the age of 18), or when you try to establish a trust as your beneficiary. Local Life Agents clarifies these issues, so you have an expert’s guidance and help regarding the differences between all types of beneficiaries.

Primary Beneficiary vs Contingent Beneficiary.

What Is a Primary Beneficiary?

A primary life insurance beneficiary is someone who is the first person to receive death benefits from your insurance policy. In contrast, a contingent beneficiary will only receive benefits if the primary beneficiary dies.

What Is a Contingent Beneficiary?

A contingent life insurance beneficiary is someone who will receive benefits if the primary beneficiary passes away. The release of those benefits depends on the fulfillment of a set of predetermined rules following the death of an insured individual.

Naming Your Beneficiary.

A life insurance beneficiary can be one person or several people, depending on how you want to guarantee financial protection in the aftermath of your death. In most cases, beneficiaries are loved ones or family friends, though a beneficiary may also be (for tax purposes) an estate or trust created in your name.

Your accountant, lawyer, insurance agent or financial planner can help you with this critical exercise. Will my wishes be carried out? Your wishes will be executed as intended, provided you have chosen at least one beneficiary to receive your insurance benefits. Those benefits will be disbursed to the named person or persons, after an official claim has been submitted.

Beneficiary Allocation.

What does allocation mean? If you plan to name more than one primary and/or contingent beneficiary, you must specify the percentage of your death benefit that each beneficiary will receive. The total percentage must be 100, so, by way of example, you can have two primary beneficiaries where one receives 60% of the death benefit while the other gets 40%.

Or: If you have a $100,000 insurance policy, and you want to name your two children (Jane and Jim) as the primary beneficiaries, then each child may receive a certain percentage of that sum. You can determine the percentages and allocations to fit your preferences.

$100,000 Death Benefit?

Jane 60% Allocation = $60,000

Life Insurance Beneficiary

Jim 40% Allocation = $40,000

naming a minor as a Beneficiary

Naming Minors as Beneficiaries.

You can name children, minors or those who are under the age of 18 as beneficiaries. All of the proceeds are not payable, however, until the following events occur:

1. The date when a minor reaches the age of majority, which is 18 or 21, according to an individual state’s particular law.

2. The date and appointment of a legal guardian for a minor. Please note: This process can be expensive, with limitations involving which person can be the guardian of your estate until a minor is 18 or 21.

3. Alternatively, you can name your children as beneficiaries of a trust, which can manage and disburse payments to them. In this scenario, the trust would be the beneficiary of your life insurance policy.


A Trust as a Beneficiary.

You can list your trust as the beneficiary of your insurance policy, as described above, but that entity must exist at the time of your death. To ensure everything is in accordance with your wishes, you should have a lawyer review the structure and terms of your trust and estate.

What Should Your Beneficiaries Know?

Your beneficiaries should know the name of your life insurance company, the policy number, the type (Term or Permanent) of life insurance you have, contact information for the insurance company, as well as the specified amount of the death benefit involving your policy, the intended allocation of monies, options for the release of funds, and whether they are the primary beneficiary or contingent beneficiary recipients.

Your Estate as a Beneficiary.

If you do not name a primary or contingent beneficiary, you can list your estate as your beneficiary. If, for example, your life insurance proceeds go to your estate, the beneficiaries of your estate will have to wait until the completion of the legal process known as probate, to receive any benefits. By naming your estate as the beneficiary, the proceeds may first be awarded to your creditors or those parties to whom you had outstanding debts prior to your death. In this scenario, there will be less money for the heirs listed in your will.

If I Have a Will, Why Do I Need to Designate a Beneficiary?

Bear in mind that you can have different beneficiaries listed in your will than those listed in your life insurance policy. For example: If you would like someone who is not your heir to receive your benefits, you can do that with the right designation.

“Always notify anyone you list as a beneficiary so they can be prepared if the time comes.”

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