Finding a life insurance policy is the hardest part! But once you’ve secured one, your work isn’t quite done. Who will you name as your beneficiary? Let’s break down some considerations you may want to weigh in your decision. 

What Is a Life Insurance Beneficiary?

Let’s make sure we first understand what we mean by “beneficiary.” In its simplest terms, the beneficiary is the person that will get the payout when you pass away. At the time of your death, the insurance company will, barring any issue with your cause of death, typically award the funds in one lump sum.

Your life insurance beneficiary doesn’t have to be one single person or organization. You can opt to split up the funds however you see fit. You can also decide if you want someone “in charge” of these matters at the time of your death, or if you prefer each beneficiary to simply handle the matters themselves with the life insurance company.

Who Should Be My Life Insurance Beneficiary? 

Let’s review some of the most common choices for beneficiaries. Keep in mind that one of the primary motivators for having life insurance is to help your loved ones be financially prepared for your passing. This could include making up your usual contribution to the family budget, covering funeral/burial expenses, paying off the home mortgage, or even getting your children through school, there are plenty of financial worries that will likely arise after you are gone.

But who should handle these funds? And, does that need to change over time?

Your Children as Beneficiaries

Many parents choose to name their children as beneficiaries. Splitting the payout among your heirs is common. Let’s say you have two children – you can opt to split that payout 50/50, with each child getting half of the funds. Alternatively, if you have young children, you may need to consider leaving the money to a caretaker (whoever will care for the children when both parents are gone) or even set up a trust.

A trust allows another person to oversee financial responsibility for the child until they become “of age” and can make choices for themselves. A trust can also dictate how funds are used, the timing of the distributions, and of course, name the “trustee” or person who handles the matters.

Your Spouse as a Beneficiary

Assuming you do not pass at the same time exactly, another common practice is to name your spouse or significant other as a beneficiary. Again, many people consider who, exactly, will handle your matters if you are gone. Chances are, for example, if Mom dies, Dad will be handling the family’s finances. Mom may opt to make dad the primary beneficiary, as the children are too young to make such choices.

Alternatively, you can also choose to split funds between your child and your spouse. For example, if you have two children, you can opt to leave 50 percent of the funds to your spouse, leaving each child 25 percent (or the other “half” to split). You are allowed to divide the percentages of payout however you see fit.

A Charitable Beneficiary

If you have a charitable cause that is very near and dear to you, such as a church or non-profit, you may opt to name that organization as the beneficiary of your life insurance policy. Many nonprofit organizations can accept such a posthumous donation. 

Naming Your Parents as Beneficiaries

Some young adults, without children or a spouse, often ask what they should do with their policy. I often advise younger adults to opt for parents as a beneficiary. Again, if you were to pass tomorrow, who would handle your arrangements? Who would be sure your debts are paid and your funeral is covered? These are the people you likely want to place as beneficiaries.

In the event that a young adult, say a 23-year-old, just out of college, in their first solo apartment, suddenly dies, it is likely that person’s parents will handle their financial matters. Additionally, there are times when adults, even with young children, are divorced. They may not wish to leave the funds to their ex, and instead select their own parents to manage the policy after death. These are times that, while they may be older, you name parents as the beneficiary. 

Discuss Your Life Insurance Beneficiary Options

If you have followed along but are still scratching your head, the good news is you do not have to decide alone. You may also change your mind from time to time, and make adjustments in the event of life changes, such as a birth of a child, a divorce or marriage, or loss of a spouse or parent. 

Many insurance policies even have online options for updating your preferences. You can also reach out to me today. We can set up a meeting to discuss your options, weigh your beneficiary choices, and find a tailored solution to all of your insurance questions.