Beneficiary Of My Own Life Insurance: Is It Possible?

Life insurance is typically taken out by people who want to ensure their loved ones are financially secure after they die. However, it is possible to be the beneficiary of your own life insurance plan. Life insurance policies with living benefits can provide financial support to policyholders who require long-term care due to a terminal or chronic illness. This allows the policyholder to access some or all of the death benefit while they are still alive. When purchasing a life insurance policy, it is important to carefully consider who you want your beneficiary to be, as this isn't always a simple decision.

Naming multiple beneficiaries

You can list a primary beneficiary who will receive 100% of the proceeds and then name a secondary (or contingent) beneficiary to receive 100% of the proceeds in case your primary beneficiary is unable to accept them for any reason. You can also elect to have multiple beneficiaries split the proceeds in varying percentages, as long as the total equals 100%.

It is always a good idea to name at least a secondary beneficiary in case your primary beneficiary dies before you do. You can also name a tertiary beneficiary as a backup if both your primary and secondary beneficiaries are unable to receive the death benefit.

When naming multiple beneficiaries, it is important to be specific with names. It is best to list the name and Social Security number of each beneficiary rather than something generic like "my children." This will prevent any confusion and speed up the payout process.

Keep in mind that your state of residence or the provider of your benefits may restrict who you can name as a beneficiary. Make sure to research your state's laws before naming your beneficiaries. In some states, you may be required to list your spouse as your primary beneficiary and designate them to receive at least 50% of the benefit.

Choosing a primary beneficiary

• Spouse or Partner: If you're married or in a domestic partnership, your spouse or partner is typically the primary choice for a beneficiary. This ensures that they can maintain their standard of living, pay the mortgage or any other shared financial obligations, and support any children in the event of your death.
• Children: If you have children, especially minor children, you may want to name your spouse or partner as the primary beneficiary and your children as contingent beneficiaries. This ensures that your children's needs will be provided for in the event of your death, with your spouse or partner managing the funds. However, if you are a single parent, you may need to consider other options, such as setting up a trust or appointing a guardian to manage the funds for your children.
• Other Family Members: In certain situations, you may want to name other family members, such as parents, siblings, or adult children, as primary beneficiaries. This could be the case if they are financially dependent on you or if you want to leave them money regardless of their financial situation.
• Friends: You can also choose a close friend as your primary beneficiary, especially if they have an "insurable interest" in your life, meaning they would suffer financial hardship if you were to pass away. However, be sure to check with your insurance company and state regulations, as some states have specific requirements for non-relative beneficiaries.
• Charities: While it's more common to name a person as a beneficiary, you can also name a charitable organization as your primary beneficiary. This might be a good option if you don't have any immediate family or if you want to support a cause that is important to you.

When choosing a primary beneficiary, it's essential to consider your unique circumstances and the people who would be most impacted by your death, financially or otherwise. It's also a good idea to review and update your beneficiary designations periodically, especially after major life changes such as marriage, divorce, or the birth of a child.

Selecting a contingent beneficiary

A contingent beneficiary is a backup beneficiary who will receive the benefit of your life insurance policy if the primary beneficiary cannot receive the payout. When you apply for a life insurance policy, you will be asked to name your primary beneficiary. You are required to name a primary beneficiary, but it is also a good idea to name a contingent beneficiary. This will ensure that your assets go to a person or entity that you care about and prevent your assets from having to go through the probate process.

You may name just about any person, organisation, or business as your contingent beneficiary. If you choose a child, you will need to designate a trustee to manage the estate on their behalf. You can also name multiple contingent beneficiaries and specify how the death benefit should be divided between them.

When selecting a contingent beneficiary, consider the following:

• Dependents: Do you have dependents who would need financial support if something happens to you? Think about who would care for them and manage any financial responsibilities.
• Adults vs. minors: Naming adults is straightforward, but if you name a minor, there are additional steps. You should create a trust or custodial account to manage the funds until they reach adulthood.
• Financial responsibilities: Consider who would be responsible for your financial obligations, such as debts, a mortgage, or dependents, if your primary beneficiary cannot fulfil this role.
• Organisations: If you have charitable causes or organisations you care deeply about, you may want to consider naming them as contingent beneficiaries.

Primary vs. Contingent Beneficiaries

The main difference between a primary and contingent beneficiary is who will receive the death benefit payout first if the policyholder passes away. A primary beneficiary is typically someone very close to the policyholder, such as a spouse, and is first in line to receive the payout. A contingent beneficiary is second in line and will only receive the payout if the primary beneficiary is unable to.

Irrevocable vs revocable beneficiaries

Yes, you can be the beneficiary of your own life insurance plan. A life insurance policy can be a game-changer if you become ill or need long-term care. Some life insurance policies offer benefits that can be used while the policy owner is still alive. These are known as "living benefits".

Now, let's dive into the differences between irrevocable and revocable beneficiaries.

When purchasing a life insurance policy, you can choose a beneficiary who is either revocable or irrevocable. A beneficiary is the person or entity that will receive the death benefit from your policy. While you can be the beneficiary of your own life insurance plan, this section will focus on understanding the differences between irrevocable and revocable beneficiaries.

A revocable beneficiary is someone you choose that can be changed at any time without their permission. The policy owner has total control and can modify or cancel the policy without the consent of the revocable beneficiary. This type of beneficiary is useful if you want to retain flexibility and make changes to your policy in the future.

On the other hand, an irrevocable beneficiary cannot be changed without their written permission. They have a substantial right to your death benefit, and you cannot alter or cancel your policy without their consent. This type of beneficiary is useful if you want to ensure that the money goes to the intended person and provides peace of mind.

Revocable Beneficiary Advantages:

• Flexibility: You can change the beneficiary at any time without their consent, allowing you to adapt to changing life circumstances.
• Control: The policy owner has complete control over the policy and can make modifications as needed.

Irrevocable Beneficiary Advantages:

• Certainty: Irrevocable beneficiaries ensure that the death benefit goes to the intended individual(s), providing peace of mind.
• Protection: This type of beneficiary is useful in cases of divorce, second marriages, or blended families, where there may be concerns about the distribution of the benefit.

Considerations:

• Consent: Irrevocable beneficiaries require the consent of the current beneficiary to make any changes, which can be challenging if family dynamics change.
• Complexity: Adding or removing an irrevocable beneficiary can be complex and may require the assistance of a legal professional.

In conclusion, the choice between an irrevocable and revocable beneficiary depends on your specific needs and circumstances. It's important to carefully consider the advantages and considerations of each type of beneficiary before making a decision.

Naming a beneficiary who is a minor

Yes, you can be the beneficiary of your own life insurance plan. However, if you're thinking of naming a child as a beneficiary, there are some important things to consider.

While it is possible to name a minor as your life insurance beneficiary, it is not recommended. Due to legal restrictions, minors cannot be paid the death benefit directly. Instead, the probate court will appoint a guardian to oversee the distribution of the inherited assets until the child reaches the age of majority. This process can be time-consuming and costly, and it may prevent the money from being used as intended.

To avoid this, it is advisable to set up a trust for your child or designate a custodian to help them claim and manage the death benefit. A custodian is responsible for claiming the death benefit on the child's behalf and will manage the money until they turn 18. Alternatively, you can name your spouse as the primary beneficiary and your trust as the contingent beneficiary.

When setting up a trust, you can appoint a trustee to manage the death benefit and any other money in the trust according to your directions. You can designate funds for specific purposes, such as education or a car, or specify that the funds are held until the child reaches a certain age.

In summary, while it is possible to name a minor as a life insurance beneficiary, it is important to take the proper steps to ensure that the money is used as intended. Setting up a trust or designating a custodian can help streamline the process and ensure that your minor children receive the payout promptly.

Frequently asked questions