One of the most important insurance decisions you can make is purchasing life insurance – it ensures that your loved ones will not suffer financial hardship in the event you are no longer there to care for them.
However, life insurance is a complex legal contract, so it’s essential to understand how to properly select a beneficiary in order to provide the needed protection and reduce the risk of extended legal battles.
Decide Who Will Be Your Beneficiary
Typically a spouse, a child or another relative is named as beneficiary, but when the designation is properly set up, a charity, a trust or even an estate can be named as the beneficiary instead. It’s also possible to have more than one beneficiary. For example, your spouse may be listed as the primary beneficiary, with the children listed as secondary beneficiaries in the event something were to happen to both of you.
Determine how much to buy based upon need. For example, a newly married couple with toddlers at home may have significantly greater need than a middle-aged couple with grown children. Likewise, a sick spouse or a child with special needs may require additional care throughout his or her lifetime. The goal is to replace the care, compensation and other essential financial measures you contribute to their lives.
Understand the Rules
Depending upon your state and individual situation, there may be legal considerations that mandate how the insurance policy is to be written. For instance, many states require a spouse to sign a waiver if he or she is not listed as primary beneficiary on a policy. Likewise, taxes and other considerations should be carefully reviewed in order to understand the implications for the prospective beneficiary.
Plan on Change
It’s important to periodically review your policy to make needed changes, especially if you have experienced a major life event such as a change of marital status or the birth of a child.