When you buy life insurance, the financial security of your loved ones in your absence is your foremost priority. A significant aspect is the life insurance beneficiary, whose name you must include when buying the policy. Selecting the right person is important to ensure that the benefits of your policy reach the people who matter most to you.
This blog discusses the five steps you must follow when deciding whom to name as your life insurance beneficiary.
Select That Person Who Depends the Most on You Financially
The main selection criterion of your life insurance beneficiary must be the person or persons who need the most financial support. In most cases, the spouse or children of the policyholder may need the death benefit for their living expense requirements or specific needs such as the children’s college education.
You can name more than one life insurance beneficiary in the policy, which may be helpful in situations when the primary beneficiary passes away.
Draw a Plan Regarding the Distribution of the Death Benefit
Once you choose your life insurance beneficiary or beneficiaries, the next step is to decide how to distribute the death benefit among the beneficiaries. To distribute the amount, you may select any one of the following plans:
- Per capita
The death benefit is equally distributed among the beneficiaries. However, if a beneficiary dies before the insured, their family will not receive the benefit.
- Per stirpes
Stirpes means branches in Latin. In this plan, the death benefit is equally distributed among all the beneficiaries and their family members, regardless of whether they live or die.
Specify When and How Minor Beneficiaries Will Receive the Benefit
Suppose you want to name a minor as a beneficiary. In that case, you may be worried whether they will rightfully receive the benefit once they become adults, and also, as young adults, they may squander the wealth they receive on frivolous things. To prevent such a situation, you may:
- Instruct an adult beneficiary in the family to ensure that the money is put to good use
- Elect an adult custodian by filling up the form under the state’s Uniform Transfers to Minors Act (UTMA)
- Name a family member or an attorney as the trustee of the money received as the death benefit
Inform Your Beneficiary
You must always inform your life insurance beneficiary about your decision and also the amount due to them. This helps them to know what to expect and plan accordingly.
Make Changes in Beneficiary Name if Required
You may update the life insurance beneficiary’s name if you need to do so. A significant life-altering event may force you to re-evaluate the decision of your choice of beneficiary. You can change if you feel someone deserves it more than the named beneficiary. Also, if the beneficiary passes away during your lifetime, a change in the beneficiary’s name is required.
Make Informed Life Insurance Decisions with Hoffman Brown Insurance!
For more information on selecting a life insurance beneficiary, contact us today. Our expert team at Hoffman Brown Company can help you buy the most affordable and best-suited life insurance coverage based on your specific requirements.