Jerry Angel, one of the Life and Financial experts here at Empower Brokerage, covers the basics that everyone should know, regarding life insurance policies and beneficiaries. Watch the video below!
To start, a beneficiary is an individual or entity who receives or may eventually become eligible to receive benefits from the insurance policy. In other words, the beneficiary ensures that your assets go where you want them to go when you die. Ultimately, naming a beneficiary offers peace of mind in knowing that your loved ones are taken care of financially when you are no longer able to.
Make sure to cover all your bases
First and foremost, make sure to be thorough when completing the background when naming a beneficiary. The most common mistake when naming a beneficiary is not being specific; details are key. One example would be if you have more than one child or children from previous marriages; the policy must state each child’s legal name and their Social Security numbers so as to avoid any confusion.
Moreover, if you are going to leave your life insurance policy to a child because that is your next heir, you will want to make sure that arrangements are in place so that the child will be able to receive the money. Most importantly, you’ll need a guarantor or somebody that is going to be taking care of the child; that is where the money goes on behalf of the child until they are eligible to inherit. This is because life insurance companies won’t pay benefits directly to a minor. Therefore, a trust must be set-up or a legal guardian appointed. Even if you’re naming your spouse as your beneficiary, you still have to have all the information. Some of the information needed includes their birth date, their social security number, their address. That’s just how it is with naming all beneficiaries; you have to be specific when naming beneficiaries.
Who can be beneficiaries?
Most of the time beneficiaries are family members. There must be some connection to the person getting the policy; there must be an obligation. For example, a grandparent cannot name their grandchild as their beneficiary because the parent must be the beneficiary. There is no legal connection between a grandmother or grandfather and a grandchild. It’s an association – a family association.
However, as long as there is some legal reason in choosing a beneficiary then that can be accomplished. For example, let’s say you got a loan and the bank is requiring you to have life insurance. In this instance, you can name the beneficiary as the bank. That way the money intended to pay off the loan goes to the bank. Ultimately, it depends on what kind of obligation there is and what kind of legal representation there needs to be in connection between the person who owns the policy and the beneficiary.
To avoid legal issues regarding beneficiaries, individuals with a life insurance policy should consider having a beneficiary review every 3 to 5 years or at least after any significant changes that occur within their family. Since families grow, whether through marriage or having kids, as well as change, due to death, divorce, etc., it’s best to review your policy every so often to make sure your assets go to your intended beneficiary. Because if a policyholder were to have children from two different marriages and they didn’t account for all their children when they named their beneficiaries, then the policy could be contested, resulting in a legal issue.