Naming Beneficiaries Made Simple
Naming a beneficiary, or multiple beneficiaries, is a huge part of life insurance. Some people show uncertainty on who to name. While others struggle with splitting the percentage of death benefit between beneficiaries. Here is a guide to naming beneficiaries.
Naming Beneficiaries for Personal Purposes
Most carriers require the spouse as a beneficiary for at least 50% in the state of Texas. In addition to a few exceptions, this requirement varies by state and carrier. Children potentially qualify as beneficiaries. However, the beneficiary must be eligible to receive the death benefit. To check this, simply ask, “Can this person go to the bank and deposit a check from the government on their own?” Someone may want to name their child, who is a minor, as a beneficiary. In this case, minors need a trustee named for them. The insured will need to make sure their wishes are clear with the trustee as the minor’s representative. A trustee can be the other parent or a different adult altogether.
Keep beneficiaries updated. Always review your policy with your agent after a major life event or life change. For instance, a beneficiary most likely changes after a divorce. The ex-spouse receives the death benefit if the beneficiary change did not take place. This poses a problem for the new spouse if the ex-spouse gets the death benefit. A policy review with your agent prevents issues such as this one from arising.
Naming Beneficiaries for Business Purposes
Many times a bank may require the death benefit pay off debt. This results in people naming their bank or financial institution as a beneficiary. This is the incorrect way for a death benefit to pay off debt. The bank keeps the excess death benefit when the debt is less than the death benefit. Instead, assign a collateral assignment of life insurance. This way, the death benefit is assigned up to the amount of the debt. Then, the remaining death benefit goes to beneficiaries as indicated on the life insurance policy.