Beneficiary Statements: Understanding Your Life Insurance Payouts

When you take out a life insurance policy, you will be asked to name a beneficiary – the person or entity who will receive the payout when you die. This could be a spouse, child, charity, or multiple beneficiaries. It's important to keep your beneficiary designations up to date as your life changes, and to be specific when naming them. This will help insurance companies verify and locate your beneficiaries. You can change your beneficiary at any time, but it's important to remember that a beneficiary designation can't be altered after your death.

Who can be a 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 your policy will pay if you die. You can choose whoever you want to be the beneficiary. This can be a person, a charity, a trust, or your estate. Almost any person can be named as a beneficiary, although your state of residence or the provider of your benefits may restrict who you can name. Make sure you research your state's laws before naming your beneficiary.

The primary beneficiary is typically your spouse, child, or other family members. However, it could be a long-term partner, a grandchild, a sibling, a relative, or a close friend. You can even choose charitable organisations. If you have a joint life insurance policy with your partner, they will become your beneficiary after you die.

If you name a child as a life insurance beneficiary and die before they turn 18, they won't control the payout until they are an adult. A guardian or a trust will manage their money. Another option is to create a trust and name the trust as the beneficiary.

If you don't name a beneficiary, your life insurance death benefit might be paid to your estate, which can delay payment to any heirs. It may also be used to pay for the cost of settling your estate and any outstanding debts. Most life insurance policies have a default order of payment if you do not name a beneficiary. For many 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.

How many beneficiaries can you have?

When it comes to choosing beneficiaries for your life insurance policy, there is no rule for how many you can have. You can opt for a single beneficiary or nominate multiple people to receive a payout. The only limit is that the percentages received by each beneficiary must add up to 100%.

While it is not necessary to name beneficiaries, doing so makes it easier for your loved ones to receive the death benefit. If you don't, the death benefit will typically become part of your estate and be distributed according to your will, or, if you don't have a will, according to intestacy laws.

You can choose to have primary beneficiaries, who will receive the payout first, and secondary or contingent beneficiaries, who will receive the benefit if the primary beneficiary is unable to. You can also split the proceeds in different ways, such as dividing the payout equally between multiple beneficiaries or by allocating specific percentages for each beneficiary to receive.

It is important to keep your life insurance beneficiaries up to date, especially after major life changes such as divorce or death, to ensure that your death benefits go to the correct people.

What if there is no beneficiary?

If there is no beneficiary listed on a life insurance policy, the insurance company is still required by contract and law to pay out the benefits. In this case, the benefits will be paid to the estate of the deceased. The "estate" includes all of the assets possessed by the decedent at the time of their death, such as cash, bank accounts, personal items, real estate, and investment accounts. It also includes any debts and liabilities.

The life insurance proceeds will become part of the probate process, which can be lengthy and result in delays in the distribution of funds. The proceeds will first be used to pay off any debts owed by the decedent, including taxes and funeral costs. Any remaining assets will then be distributed according to the decedent's will. If the decedent died without a will, the estate will be divided according to intestacy laws, with the decedent's spouse and children typically receiving everything. If there is no surviving spouse or children, the estate will be divided among the next-closest group of relatives, such as siblings and parents, and then grandchildren, aunts, and uncles.

It is important to note that the probate process can result in heirs receiving less than the original death benefit and that it may take longer for them to receive the funds compared to if they were named as beneficiaries of the policy. Therefore, it is recommended that policyholders regularly review their policies and name at least one primary and one contingent beneficiary to avoid this situation.

What are the different types of beneficiaries?

When you take out a life insurance policy, you will be asked to name your beneficiary or beneficiaries. A beneficiary is the person or entity who will receive your policy's death benefit when you pass away. You can choose to have one or multiple beneficiaries, and they can be family members, charitable organisations, or legal entities—it's entirely up to you.

There are two main types of beneficiaries: primary and contingent. A primary beneficiary is the person or entity first in line to receive the death benefit from your life insurance policy. Typically, this is a spouse, child, or other family member. You can choose to name multiple primary beneficiaries, in which case you will need to decide what portion of your death benefit will be paid to each beneficiary.

In the event that your primary beneficiary dies before you or cannot be located, the contingent beneficiary will receive the payout. This is why it is important to establish a contingent beneficiary when setting up your policy.

You can also choose to make someone an irrevocable beneficiary. In this case, they cannot be removed or have their portion of the death benefit altered without their consent. This may apply in cases of divorce, where a person is required to name their former spouse as an irrevocable beneficiary as part of the divorce agreement.

How to change beneficiaries?

A beneficiary statement for life insurance is a document that outlines who will receive the death benefit payout from your insurance policy in the event of your death. It is important to keep this information up to date, especially after major life events such as marriage, divorce, or the birth of a child.

To change the beneficiaries of your life insurance policy, follow these steps:

• Contact your insurance company: Get in touch with your insurance provider to understand their specific process for changing beneficiaries. The process may vary depending on the insurance company.
• Obtain the necessary forms: Request a change of beneficiary form from your insurance company. This form will typically require information such as the policyholder's name, the new beneficiary's name, and the reason for the change.
• Complete and submit the form: Fill out the form with the required information. If you are replacing a revocable beneficiary, you can proceed to submit the form to the insurance company for approval. If you have named an irrevocable beneficiary, you will need their written consent to make the change.
• Provide additional documentation: In some cases, you may need to provide additional documentation, such as a copy of the policyholder's death certificate if the change is due to their death.
• Notify your new beneficiary: Inform your new beneficiary about the policy and let them know where to find the relevant coverage documents should they need to file a claim in the future.
• Seek legal advice if needed: If you have any questions or concerns about the process, it is recommended to consult with a legal advisor or an estate planning professional, especially if your circumstances are complex.

Remember that you can change your life insurance beneficiary at any time, as long as the policy is active. Keeping your beneficiary designations up to date ensures that your wishes are carried out and that the death benefit payout goes to the intended recipient.

Frequently asked questions