Life Insurance Advice: How to Choose a Beneficiary

The beneficiary listed on your life insurance policy will be the person who inherits your policy payments if you pass away while the policy is active. When you choose a beneficiary, you should be objective in considerations. Make your decision based on laws in your state, needs of your family and the ability for potential beneficiaries to manage the funds.

State Laws

State laws may govern who is eligible to receive your life insurance payments depending on how you wish those payments to be distributed. For example, you may have an executor of your will. This person may be required to be a licensed attorney in the state you live in. If you have a person serving this role for your will or trust, you may want to continue to use his or her services in order to distribute your life insurance payments. If so, the person receiving your life insurance payments will be the same legal representative you have elected to manage your estate. This person may have as much or as little freedom as you see fit. The written requests in your will dictate his or her role.

Family Needs

You should consider the needs of the individual members of your immediate or extended family when you pass away. Think not only about what they need on a day-to-day basis but also what they still may expect from you in the future. For example, if you have 2 children who have graduated college and one who has not yet started, then you may need to list that child as a greater beneficiary so he or she has the necessary funds to attend school. These options also depend on the size of the policy you have. Larger policies may require more administration between multiple beneficiaries, while small policies can be left easily to solely one person.

Management of Funds

You will want to consider whether the persons you are leaving money to have the wherewithal to manage the funds appropriately. If not, you may consider putting provisions in a legal document that ensure the money will be used appropriately. For example, a person with only one child who is under the age of 10 cannot expect that child to manage the policy. However, the same person may not want to leave the funds to an ex-wife or estranged mother of the child. As such, you may provide the funds be given to the child under the care of a financial administrator.

Why you Need Life Insurance

Remember the main purposes of life insurance when you are determining your beneficiary. These purposes are not only related to the beneficiary. In fact, a number of the main reasons you elect life insurance are personal:

  • To provide for your burial and funeral expenses as you have determined you would like them to be arranged

  • To pay the balance on debts you have not paid off so your relatives do not bear that burden

  • To provide for the needs you would have otherwise been able to complete, financial and personal

  • To benefit your relatives or those you leave behind as you personally see fit