The ultimate 5-minute guide to choosing the right beneficiary

February 02, 2023

You took the first step and purchased life insurance. So, what’s next? Choosing your beneficiary—the person(s) or entity who will receive the policy’s benefit after you pass away. Protecting your loved ones or supporting an organization is the purpose of your policy, so it’s critical that you choose a beneficiary right away.

Choosing who will receive your death benefit is an important decision though, and you may have questions. Don’t worry; we’ll cover everything you need to know. In the next 5 minutes, you’ll become informed on the types of beneficiaries you can name and get tips on how to pick the right person or organization.

Ready to get started? Let’s go!

First, what happens if you don't name a beneficiary? 

No matter what type of life insurance policy you have—term life, whole life, or final expense insurance—you’ll need to choose a beneficiary. Remember, you can always change your beneficiary later on, but if you don’t name someone or if your beneficiary predeceases you and you pass away, your death benefit will be paid to your estate. If this happens, it may be difficult and time consuming for the money to get to your family. The money may also be subject to estate taxes when it’s retrieved.

You can see why it’s so important to name a beneficiary early on. It’s a big decision though, so let’s talk through the types of people or entities you may want to select.

Who (or what) can you name as a beneficiary? 

Take a moment to think through the people or organizations you want to support after you pass away. Many people buy life insurance to ensure their families are financially stable after they’re gone. Life insurance can be used to help pay off mortgages, personal debt, daily expenses, and college tuitions. It can also be used as an inheritance or to support a charity.

When you name a beneficiary on your policy, you can choose:

 What are the two types of beneficiaries? 

There are two types of beneficiaries you’ll want to name—primary and contingent—and they each serve an important purpose.

Primary beneficiary

This is the person or entity who is first in line to receive your death benefit. You can name one person who will receive 100% of the benefit, or you can name two or more people and designate a percentage for each.

For example, you can name your spouse or partner as a primary beneficiary who will receive 100% of the benefit. Or if you have two children, you can name both as primary beneficiaries who will each receive 50% of the benefit. You can also name a spouse or partner to receive 50% of the benefit and two children who will receive 25% each. You can do the same with an organization or charity of your choice.

Contingent beneficiary

If your primary beneficiary cannot be found or has passed away, a contingent beneficiary is next in line to receive the benefit. You can organize one or more people, or entities, to be contingent beneficiaries. This is a safeguard to ensure your benefit is used appropriately and supports the right people or organizations.

How to designate beneficiaries 

When you name a primary or contingent beneficiary, we recommend being as specific as possible. Add the person’s full name and social security number so there’s no confusion about where the benefit should go. We also recommend clearly stating how you would like your beneficiary to use the funds. This helps ensure your wishes are carried out.

Throughout your life, you may need to revise your beneficiaries. Fortunately, with Lumico, it’s easy to do so. For example, if you name your children as beneficiaries, you will need to add any children who are born or adopted later on, otherwise they won’t receive the benefit. If you get divorced and don’t want to support your ex-spouse, you may want to adjust your beneficiary as well.

What to remember

Above all, know that your life insurance policy is only useful when it can be accessed at the right time—for the right people or organizations. Choose a primary and contingent beneficiary right away so that your policy can be used to the fullest when it’s needed the most.

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