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AAFMAA Blog

5 Things to Consider When Selecting Your Life Insurance Beneficiaries

2021-03-03

You purchase a life insurance policy to protect your loved ones in the event something happens to you, but selecting a beneficiary isn’t always easy. So where to start? Consider the following 5 components to get a clearer picture on the best beneficiary option for your policy:

 

  1. Decide How You Want the Money Spent

A key consideration in selecting a beneficiary is how the death benefit will be spent. Some policy owners intend the money to be used for final expenses or to pay off unpaid debt. Others intend the money to go towards helping their family with mortgage payments or education expenses. Once you know how you would like the money to be used, you can narrow down your choice of beneficiaries to those connected to the cause.
 

  1. Identify Your Beneficiary’s Status

Beneficiary designation can be affected by “Life Qualifying Events,” such as marriage, divorce, birth or death of a family member. Keep this in mind when considering your current relationships and any qualifying events that may arise. Likewise, check your state’s local laws to ensure children are of legal age to be beneficiaries and if there are any stipulations in the case of divorce. Many states will not allow death benefits to be paid to a former spouse if the divorced status is not specified in the policy. This could inhibit your loved ones from receiving the support you intended.
 

  1. Know Your Options

Your beneficiary doesn't have to be a person. Instead, you can designate a trust, charity, alma mater, or another legal agreement as a beneficiary, allowing you to support a cause you care about.
 

  1. Consider a Contingent Beneficiary

When you assign a beneficiary to your life insurance policy, you assume the beneficiary will outlive you and be able to receive the benefit. However, this doesn't always happen. Assign a contingent beneficiary who would receive the policy benefit in the event of the primary beneficiary's death.
 

  1. Understand the Importance of a Beneficiary

If you neglect to designate a beneficiary (or all your beneficiaries predecease you), the death benefit will be paid to your (the policy owner’s) estate. The probate court will then decide how to handle the funds, which could take several years and potentially cost you some of the proceeds. Designating a beneficiary is essential to getting your money into the hands of those who need it most.