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Wills and estate planning

Understanding beneficiary options in a life insurance policy

This article covers common beneficiary options for life insurance benefits, including how many beneficiaries you can name, different levels of beneficiaries and the importance of being specific.
When you buy a life insurance policy, you must designate a beneficiary, or someone to receive payment in the event of your death. However, selecting a beneficiary may present you with situations where you'll need to specify how your life insurance benefits will be handled. After all, when the time comes, you won't be here to voice how your final wishes are to be fulfilled.

Selecting one or more beneficiaries

When choosing a life insurance policy beneficiary, you are allowed to name more than just one person or entity to receive policy benefits. For example, you may have children that you would like to name individually as beneficiaries. You can even specify how you want the proceeds split, by establishing various percentages. So if you have two beneficiaries, you could designate a 60/40 split, or any other combination.

Selecting different beneficiary levels

In addition to selecting a beneficiary or beneficiaries, there are also different levels that you might consider.
  • Primary beneficiary — The primary beneficiary is the person or entity that is chosen to receive the death benefit first, receiving the proceeds of your life insurance policy when you die. Keep in mind that you can name more than one primary beneficiary on your policy.
  • Secondary beneficiary — The secondary beneficiary (also known as the contingent beneficiary), would be the next in line to receive the proceeds of your policy should the primary beneficiary be unable to do so.
  • Tertiary beneficiary — Finally, the beneficiary next in line (should you choose to name one), is the tertiary beneficiary. This person or entity will receive the life insurance policy proceeds in the event that both the primary and the secondary beneficiaries are unable to do so.

Be sure to name names

Finally when it comes time to designate a beneficiary for your life insurance policy, it's critical that you list the full and correct name of each person or entity. For example, you don't want to simply designate a group, such as your children as beneficiaries or a worthy charity. This can cause confusion because you may have intended to include step or adopted children, or to have proceeds go to a specific local charity.

When the time comes to name your life insurance policy beneficiary or beneficiaries, it's critical that you consider all the potential situations that could happen before and after you die to ensure that your money is distributed correctly.



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