Who Can Be A Life Insurance Beneficiary: Friend Or Family?

When you purchase a life insurance policy, you can choose who will receive the death benefit when you pass away. This person is known as the beneficiary. While many people choose family members as their beneficiaries, it is not a requirement. In fact, you can name anyone as your beneficiary, including friends. However, there may be restrictions if you live in a community property state, where your spouse may need to waive their rights before you can designate someone else as your beneficiary. Additionally, minors cannot be named as beneficiaries directly; you would need to designate a legal guardian or a trust for them. It is important to carefully consider who you choose as your beneficiary and keep your designations up to date, as this decision can have significant financial implications.

Who can be a life insurance beneficiary?

A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products. For life insurance coverage, this is the death benefit paid out by the policy when you die.

There are two types of beneficiaries: primary and contingent. A primary beneficiary is the person (or persons) first in line to receive the death benefit from your life insurance policy. Typically, this is a spouse, child, or other family member. A contingent beneficiary will receive the benefit if the primary beneficiary has already passed away or is otherwise unable to.

You can name anyone as a life insurance policy beneficiary, including friends, charitable organizations, children, or the guardians of your children. Trusts can also be named as beneficiaries. However, there are a few things to keep in mind.

Firstly, if you are married and live in a community property state, your spouse must be a primary life insurance beneficiary, and they must waive their rights if you want to designate someone else. There are nine community property states in the US: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Secondly, the only universal restriction for life insurance beneficiaries is age. You cannot name a minor as your beneficiary. To provide a person under the age of 18 with death benefits, you would need to designate a legal guardian or a trust as your beneficiary.

Finally, while you can name anyone, it's important to consider the relationship between you and the beneficiary. The life insurance company might ask what "insurable interest" your friend has in you, i.e., how they would suffer financially if you passed away.

It's also worth noting that while you can name multiple beneficiaries, the total percentage of the proceeds must equal 100%.

Can a friend be a beneficiary when you buy a policy?

When taking out a life insurance policy, you will be given the option to designate one or more beneficiaries. A beneficiary is a person or entity that will receive the proceeds of your life insurance policy after you pass away.

There are two types of beneficiaries: primary and contingent. A primary beneficiary is the person or persons first in line to receive the death benefit from your life insurance policy. Typically, this is a spouse, child, or other family member. A contingent beneficiary, also known as a secondary beneficiary, is a backup who will receive the death benefit if the primary beneficiary has passed away or is otherwise unable to receive the benefit.

In most cases, there are no rules restricting who you can choose as a beneficiary. You can name anyone, including non-family members such as friends, charitable organizations, or businesses. The only restriction is for minors, as you would need to designate a trust or legal guardian as the beneficiary to provide them with the death benefit.

However, it is important to note that if you are married and live in a community property state, there may be restrictions. In these states, your spouse may be required to waive their rights or give permission for you to designate someone else as the primary beneficiary. The community property states in the US are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

To designate a beneficiary, you will need to fill out a beneficiary designation form provided by your insurance company. This form is a legal document that will specify who will receive the death benefit and how much they will receive. It is important to keep your beneficiary designations up to date, especially if you experience any major life changes such as marriage, divorce, or the death of a loved one.

How to designate a beneficiary?

How to Designate a Beneficiary

Designating a beneficiary is a relatively simple process. Most insurance companies have online platforms where the policyholder can log in and change the information whenever they please. Sometimes, other companies may have a form that needs to be filled out and submitted back to the life insurance company for review. Either way, it usually takes less than 15 minutes to check your beneficiaries and make changes if necessary.

Once you've determined who you would want as your beneficiaries, you should specify them on the life insurance beneficiary designation form. A beneficiary designation form is a legal document and will be used by the insurer to determine who will receive the death benefit if you pass away during the period of coverage (as well as how much they will receive). This designation overrides any other estate planning you may have, such as a will, so you need to be certain the listed beneficiaries are those you actually want to receive a benefit.

There are typically two levels of beneficiary: primary and contingent. A primary beneficiary is your first choice to receive the death benefit if you pass away. A contingent beneficiary is the backup; they are the person you would want to receive the payout if the primary beneficiary is deceased as well. So, if your spouse is your primary beneficiary and you both pass away in a car crash, the contingent beneficiary would receive the death benefit.

It's important to be specific when designating a beneficiary, otherwise, you can end up with disputes between your loved ones. For example, just saying "husband" or "wife" on a life insurance policy would cause problems if you get divorced and remarried. For a person, you'll want the following details:

• Address (street address, city, state, zip code, country)
• Social Security Number

If you want to have multiple life insurance beneficiaries, there are three ways to assign the death benefit each will receive:

• Each beneficiary is named and assigned a percentage of the death benefit.
• The death benefit is divided equally across each segment (or branch) of the family.
• The death benefit is divided equally across each person that is eligible to receive a payout.

You can also specify whether a beneficiary should receive the life insurance proceeds as a lump sum payment or in monthly payments. This method is typically preferred if your beneficiary is a teenager or you wouldn’t trust them to spend a large influx of cash well.

If your intended beneficiary is a minor, some insurers won’t let you directly name them as a life insurance beneficiary. In these cases, you can either name their legal guardian as the beneficiary, designate a custodian for the proceeds through the Uniform Transfers to Minors Act, or create a trust for the child and make the trust beneficiary.

While you can name anyone as a beneficiary, just make sure to notify them and provide them with a copy of your life insurance policy. Otherwise, they may not know to or be able to file a claim when the time comes.

What happens if you don't name a beneficiary?

It is not mandatory to name a beneficiary, but it is highly recommended. If you don't name a beneficiary, the death benefit will be paid to your estate, and it will have to go through probate, a legal process that costs money and slows down how quickly the money gets to your loved ones. Probate can take months, and creditors can come after the life insurance death benefit. In some cases, the payout may be held in probate for years before your loved ones can access your assets.

In the case of retirement accounts like a 401(k), if you die without a beneficiary, your assets will be held in probate, and a court will have to sort out your financial situation and determine how to distribute your assets.

Most life insurance policies have a default order of payment if you do not name a beneficiary. For individual policies, the death benefit will be paid to the owner of the policy if they are different from the insured person and still alive; otherwise, it will be paid to the owner's estate. For group insurance policies, the order typically starts with your spouse, then your children, then your parents, and then your estate.

If there is no default order specified in your policy, the payout may be paid to your estate or held in probate.

Can you change your beneficiary?

Yes, you can change your beneficiary whenever you like. There are no specific time restrictions on when you can change your beneficiary. However, there are some circumstances in which you may not be able to change or name a new beneficiary without getting your current beneficiary's consent. For example, if you have made an "irrevocable designation", you will need the consent of your irrevocable beneficiary to change or remove them.

The only time you won't be able to change your beneficiary is if you are declared legally incompetent.

To change your beneficiary, contact your insurance company. You will likely need to make the request in writing, and your insurance provider can give you the correct forms to fill out. If you have a local agent, it's as simple as giving them a call. Many companies now also have web portals where you can change this information yourself.

It's a good idea to review your beneficiaries regularly and make changes as necessary. For example, following a divorce, you may want to remove your former spouse as a beneficiary.

Frequently asked questions