When buying life insurance, you designate who or what should receive the related benefits upon your death; those that you name are the beneficiaries.
Beneficiaries can be:
- One or more people
- A business or corporation
- A legal entity, like a living trust
- A nonprofit organization
- Your estate
Generally, if you do not name any beneficiary, or if none of your assigned beneficiaries survives you, then the proceeds of your life insurance policy become an asset of your estate.
Your insurer may require that you assign both primary and contingent beneficiaries. Any primary, or first, beneficiaries listed on a term life insurance policy would receive the insurance benefit, provided they could be found and were living. Should the primary beneficiary predecease the policyholder or is unable to be found, the benefit would then revert to those you had designated as the contingent, secondary, or successor beneficiaries.
How to Designate the Beneficiaries of Your Term Life Insurance Policy
The purpose of having term life insurance is to ensure that financial resources are available to your beneficiaries, traditionally a spouse and dependents, after your death. People typically obtain a policy with one or more specific reasons in mind, including:
- Replacing lost income
- Covering medical or funeral expenses
- Covering child care and education costs
- Creating savings or an inheritance
- Paying off a mortgage or personal debt
- Protecting an estate
- Providing for retirement
- Giving to a charity
When selecting beneficiaries, consider who would be affected financially by your passing and which of those people you would like your policy's benefits to assist. Also, determine what financial obligations you would like the proceeds to cover, and the assets you would like to protect. Decide whether you want to give some or all of your death benefit to a specific cause or company. Then, prioritize your chosen recipients.
For instance, you may name your spouse or life partner, so that they may continue in the current standard of living. You may designate your children, so they can pay for college tuition. You may list one or more business partners to keep your company operating.
Periodically Update Your Life Insurance Policy Beneficiaries
If, after you obtain a life insurance policy, your life circumstances change--you have or adopt additional children, you get divorced or remarried, or your spouse passes away, be sure to update your beneficiaries.
As the policy owner, you may amend beneficiaries--unless the policy has an irrevocable beneficiary designation. In that situation, you must obtain permission from the existing beneficiaries to do so.
A term life insurance policy is a surefire way to protect your family and/or assets after your death.
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