Life insurance is there to take care of your loved ones financially when you are no longer here. If you are the main breadwinner in your family, then you will need a life insurance policy. Naming a beneficiary is then important when you take a life policy, as this will be the person that will receive your life insurance benefit in the event of your death.
If you have not named a beneficiary then the policy pays to estate, which includes all your property and debts. This can cause a couple of issues. Firstly, the money that is in your estate won’t be immediately available to your family and the legal process can take up to a year. The second issue is that once the insurance pays to your estate, any money that you owe can be claimed.
Why You Should Name a Beneficiary
If you have named a beneficiary of your life insurance policy, then the payout will be made as soon as the claim is approved. Your family will then have immediate access to a lump sum. As the money is paid to your beneficiary and not your estate, creditors will not have any claim to it.
Often naming who your beneficiary should be is straightforward as it is usually a spouse or an adult child. However, if you have younger children then you will need to rethink as a minor cannot be a beneficiary and they will need to have someone to manage the money on their behalf.
This means that you will need to have a will that states who the guardian will be. You will need to choose someone responsible and trustworthy as well as someone that will carry out your wishes and take care of your children. You need to be honest with yourself and choose someone whether it be a family member or a friend, that will do the right thing when you are no longer here.
What You Need to Know About Beneficiaries
With a life insurance policy, you can change the beneficiary at any time. Many people change beneficiaries when life circumstances change like if they get a divorce or if a child has reached adulthood. Review your policy often to make sure that you are still adequately insured as will as checking if your beneficiaries are still appropriate.
If the beneficiary that you have chosen dies before you then you can call your insurance provider and name a new beneficiary. If the beneficiary dies at the same time as you, then the policy will payout to your estate.
You can have multiple beneficiaries on your life insurance policy and you can stipulate the portion of benefit that each beneficiary will receive.
It can be hard to think about these things and to discuss them with your loved ones, but it is necessary. You will need to have a will in place so you can be sure that your family is looked after once you are gone.
Making these decisions now can give you and your family great peace of mind, so make sure that you have a life insurance policy in place and that you have named your beneficiaries.