Someone you know just appointed you as their life insurance beneficiary. It’s an important title, but do you know what it means for your future?
The short answer—as a beneficiary, you are in line to receive someone’s death benefit after they pass away. A life insurance death benefit is a payout from policy, designed to help support you, as a beneficiary. You can use a death benefit to help cover the costs of a funeral and burial, pay off your loved one’s debt, or continue to live at your current lifestyle if you’ve lost their income.
It can be tough to think about a loved one passing away. But it’s wonderful that your loved one has made a financial plan to help support you when they’re no longer here. As a beneficiary, know that you are being cared for financially and your lifestyle is being put into consideration.
Now, here are some additional details to know.
There are three types of beneficiaries. Which one are you?
If possible, ask your loved one which type of beneficiary they listed you as. There are three main types, and it’s important to understand how they’re different.
- Primary life insurance beneficiaries. This person is the first to receive a death benefit should the policyholder pass away.
- Contingent life insurance beneficiaries. Life can change quickly, so it’s also important to have a backup plan. A contingent beneficiary receives the benefit if the primary beneficiary passes away first.
Sometimes, life insurance policyholders name joint beneficiaries and assign a percentage of the amount of the benefit to each person. For example, someone can assign 70% to their spouse and 30% to their child or sibling.
Ideally, while your loved one is alive and well, you’ll learn which type of beneficiary you are listed as and how much you’re allotted to receive in the future. The sooner you have this conversation, the better—and the more clarity you’ll have going forward.
For example, here are a few questions we recommend that you ask:
- Where do you store information about your life insurance policy?
- Can anyone else access this information?
- Who is your life insurance company?
- How can I contact your insurer’s customer service?
- How much is the policy worth?
- Is anyone else listed as a joint beneficiary?
- How do you plan to distribute the death benefit?
- Where can I obtain copies of your medical records?
- Do you have preferences about how the benefit is spent? For example, do you wish to spend a certain amount on your funeral and burial?
To help guide the conversation, we’ve created a helpful worksheet that can be found within the policyholder's Lumico Welcome Kit. You can use this worksheet to write down your loved one’s final wishes and a brief description of their policy. You can refer to it after your loved one passes away, when you may need a refresher on how to use the policy’s death benefits.
We know that these conversations can be incredibly difficult—but they’re important. As a beneficiary, it’s up to you to honor your loved one’s wishes and use the benefits that were given to you. Remember, there’s no better time than now to start the conversation.
