So, after much deliberation and thought, you have decided on a life insurance policy for your kids. But now comes the hard part, deciding who the beneficiary for your policy will be after your passing.
It may be the biggest decision you will make, as it will impact the lives of your children after you are gone.
There are many points to consider when making this decision.
You may have many children that depend on you, as well as other people like your parents or friends that could benefit from your decision.
It is also important to understand the rules of naming a beneficiary.
What Is a Beneficiary?
A beneficiary is a person who receives the payout for your life insurance policy when it matures.
If you have underage children, the beneficiary will be the person responsible to manage their finances after your death. Because of this, it is very important to choose your beneficiary and life insurance wisely.
The beneficiary will also be responsible for any other financial decisions in your absence.
This includes certain medical and end-of-life expenses like paying for the funeral and other debts.
How Do Life Insurance Beneficiaries Work?
The process can seem a little complicated from the outside, but with some research and due diligence, it is not that hard to understand.
Here are some common types of life insurance beneficiaries:
1) Primary life insurance beneficiaries. These people are at the top of the list for cashing in the payout when you die.
2) Contingent life insurance beneficiaries. Referred to as secondary beneficiaries, they come into play when your primary beneficiary dies before you do.
Another important thing to take into account is how the cash is distributed among the beneficiaries.
The 2 main methods are per capita and per stripes.
In the per capita method, every person in a certain group is entitled to an equal share of the proceeds. This can be your children or other named individuals in your will.
The per stripes method follows a more linear approach. Where if your named beneficiary dies before you, the insurance benefits will pass on to their children.
Can You Have Multiple Beneficiaries?
Yes, it is possible to have multiple beneficiaries, but there are a few points to consider.
The main thing is to decide what percentage of the payout each person is entitled to when the insurance matures.
It is important to assign percentages to each individual named in the policy, and it must always equal a total of 100%.
If this is not calculated, the insurer could assign an equal share to each beneficiary named.
Choosing a Life Insurance Beneficiary
As important as this decision is, it is paramount to be as precise about your decisions when setting up the policy.
This can save a lot of time and hardship for your family in the long run, and avoid common life insurance mistakes that may happen.
One point to consider is to think of the people who would be most affected by your passing.
People who will inherit your debts and bills are a primary example – also anyone who would have to pay for your end-of-life funeral expenses.
Naming Children as Your Beneficiaries
Naming your children as beneficiaries seems like the most sensible decision, but there are a few things to consider.
You may need to appoint a trusted guardian in case your children are under age when you pass. But it is a decision that should be made very carefully.
Another option is to set up a trust for your children.
A trustee can then distribute the proceeds among your children according to your wishes.
It may seem like a complicated task at first.
However, with a little research, one can set up a method that suits one’s family’s needs when it comes to insurance. A trusted life insurance advisor can also help you make this decision.
After all, it is something your children will thank you for long after you are gone.