Naming Parents As Life Insurance Beneficiaries: Is It Possible?

Life insurance is a way to provide money to your loved ones after you pass away. The person who receives the payout from a life insurance policy is called the beneficiary. While it is not mandatory to name a beneficiary, it is highly recommended, as it ensures that the payout goes to the intended person and is not delayed. The beneficiary can be a close relative, such as a spouse, child, or parent, or even a more distant relative or friend. In the case of minors, it is recommended to set up a trust or appoint an adult guardian to manage the funds until the child reaches the legal age of consent. It is also important to keep beneficiary designations up to date and review them regularly as life circumstances change.

Naming parents as beneficiaries

To name your parents as beneficiaries, you will need to fill out a beneficiary designation form provided by your insurance company. On this form, you will be asked to provide the name(s) of your beneficiary (or beneficiaries, if you have more than one). You may also be asked for additional information such as their full legal name, mailing address, email, phone number, date of birth, and Social Security number. Providing as much information as possible will help the insurance company verify and locate your beneficiaries if needed.

It is important to note that you can have both primary and contingent beneficiaries. A primary beneficiary is your first choice to receive the payout from your policy, while a contingent beneficiary will receive the payout if your primary beneficiary is unable to or passes away. You can name your parents as either primary or contingent beneficiaries, depending on your preferences and circumstances.

Keep in mind that you can change your beneficiaries at any time by contacting your insurance company and filling out a new beneficiary designation form. It is a good idea to review and update your beneficiaries periodically, especially after major life changes such as marriage, divorce, or the birth of a child.

Additionally, it is important to be aware of any state laws or insurance company policies that may impact your ability to name your parents as beneficiaries. In some states, for example, beneficiaries who are not relatives may need to have an "insurable interest" in your life, such as a friend you co-own a home with.

Primary and contingent beneficiaries

When setting up a life insurance policy, it is important to designate both primary and contingent beneficiaries to ensure your assets are handled according to your wishes.

Primary Beneficiaries

The primary beneficiary is the first person or entity in line to receive the assets or benefits from your life insurance policy upon your death. This individual or group has the primary claim to the inheritance and typically includes close relatives and/or favourite organisations. You can name more than one primary beneficiary and specify how the assets should be divided. It is important to keep your primary beneficiary designations up to date, especially after major life changes such as marriage, divorce, or the birth of a child.

Contingent Beneficiaries

A contingent beneficiary, also known as a secondary beneficiary, is the person or entity that stands to inherit the assets if the primary beneficiary is unable or unwilling to do so. They serve as a backup to the primary beneficiaries and ensure that your assets are passed on according to your wishes. Contingent beneficiaries are second in line to inherit the assets and will only receive them if the primary beneficiary has predeceased you or cannot be located. You can designate multiple levels of contingent beneficiaries to ensure a clear line of succession.

Why Both Types of Beneficiaries Are Important

Naming both primary and contingent beneficiaries is crucial for comprehensive estate planning. It helps to avoid the lengthy and costly probate process, ensures your wishes are fulfilled, and provides clarity and security for your loved ones.

Naming minors as beneficiaries

While it is possible to name a minor as a beneficiary, it is not recommended. Due to legal restrictions, minors cannot be paid the death benefit directly. If a minor is named as a beneficiary, a court will appoint an adult custodian to manage the funds until the minor reaches the age of majority. This process can take several months and delay the payout.

If you want your life insurance payout to go to your minor child, it is better to set up a trust for them. This way, they will receive the benefit promptly and without having to pay taxes or legal fees. A trust can be set up as revocable or irrevocable. A revocable trust allows you to adjust the assets and beneficiaries over time, while an irrevocable trust cannot be changed after it is created. Another option is to designate a custodian who will claim and manage the death benefit on the child's behalf until they turn 18.

In some states that have adopted the Uniform Transfers to Minors Act, you can create a "custodial account" that will hold the money for the child until they reach the legal age of consent. It is important to note that children under 18 can be named as primary or contingent beneficiaries, but if the insured dies while they are still minors, the proceeds may be sent to the legal guardian of the child's estate.

Choosing a beneficiary

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. If your primary beneficiary dies before or at the same time as you, you can name a backup beneficiary, called a secondary or contingent beneficiary, who will receive the death benefit instead.

You can name multiple beneficiaries and decide how you want the money to be split between them, usually by percentage. You can also name minors as beneficiaries, but it is not recommended as the proceeds may be sent to the legal guardian of the minor child's estate. Instead, you can set up a trust for your child and name the trust as the beneficiary.

When choosing a beneficiary, it is important to consider who will be most financially impacted by your death. For example, if you have a spouse, they may no longer be able to pay bills or a mortgage without your income. Similarly, if you provide financial support to your parents, they may struggle without your help. If you have multiple financial obligations to family members, you can name multiple primary beneficiaries and outline the percentage of the policy payout each will receive.

It is also important to keep your beneficiary designations up to date as your life changes, such as marriage, divorce, the birth of a child, or a change in your financial situation. You can change beneficiaries at any time, but it is a good idea to check with your insurance company to ensure the policy you purchase allows beneficiary changes.

Changing beneficiaries

It's essential to keep your life insurance beneficiaries up to date, especially if your life circumstances have changed, such as getting married, divorced, or having a child. For example, if you have named a previous spouse as the beneficiary but have since remarried, you may want to update the beneficiary to your current spouse. If you don't update your beneficiaries, it may result in the wrong person receiving your benefits or delays in benefit payments.

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 the life insurance policy. Typically, this is a spouse, children, or other family members. A contingent beneficiary, also known as a secondary beneficiary, will receive the death benefit if the primary beneficiary is deceased or unable to receive the funds.

In most cases, you can change the beneficiaries on your life insurance policy at any time. However, in some circumstances, such as specific terms of a divorce or naming an irrevocable beneficiary, you may need the current beneficiary's consent to make changes. Additionally, if you have transferred ownership of the policy to someone else, you are no longer the owner and cannot change the beneficiary.

Frequently asked questions