Who Should Be Your Life Insurance Beneficiary?

When you decide to buy life insurance, you have to choose your policy beneficiary. This is the person who will receive the money from the policy upon the insured person’s death. You cannot be your own life insurance beneficiary, since you have to die for the policy to pay out. Who should you choose to be your beneficiary? Can you take steps to make sure the money goes to the best place? 

Who is a beneficiary?  

At their core, life insurance policies involve two parties – insureds and beneficiaries. The insured person is the one who will have to pass away for the policy’s death benefit to pay out. The beneficiary is the person who will receive that money.  

Usually, the insured must approve the beneficiary at the time the policy takes effect. The thing about choosing a beneficiary is that the insured usually has choices of who they can name. Often, the beneficiary is the person that you feel can benefit most from the death benefit. They might include: 

Policies don’t go through escrow. So, creditors cannot claim the money before the beneficiary receives it. However, there are limitations on beneficiaries at certain times.  

Beneficiary Limitations and Solutions  

If you name a beneficiary, it usually must be a person who can legally receive the money. Children under the age of 18 or dependent adults often cannot receive the money. However, you can choose to place the death benefit in a trust account to help solve this problem.  

When you list a trust account on your policy, the death benefit will go into that trust upon your death. The trust will name a responsible person to manage the money until its intended recipient can receive it. The trust can also include stipulations on how the recipient can use the money. So, some people choose to place life insurance money in trust if they want it to go to a specific purpose, like mortgages or educational expenses.  

When choosing your life insurance beneficiary, talk to your agent about who you have in mind and where you want the money to go. They can then guide you on the right steps to take to get the money to the proper beneficiary. If necessary, also let the beneficiary know that they are on the policy. They will know that they might need to claim the money upon your death.