Selecting a beneficiary is a highly personal decision based on your values and financial circumstances. Your beneficiary can be any person or entity of your choosing, such as a spouse, child, trust or charity, the III says.

Spouse:

If you pass away, consider how losing your income would affect your husband or wife financially. Would he or she be able to make ends meet? Life insurance benefits may be used to cover expenses such as your mortgage, long-term debt and even the costs of a funeral. Keep in mind that certain states require your spouse's permission to name someone else as your life insurance beneficiary, according to nolo.com.

Child:

Do you have dependent children? Life insurance benefits may be used to help pay for their future college educations when you pass away. Keep in mind, however, that minors (defined as under age 18 or 21, depending on the state) cannot be named as direct beneficiaries, says the American Institute of Certified Public Accountants (AICPA). You may wish to create a trust in the child's name or designate an adult custodian for the funds instead. This trust or adult custodian may then be named as beneficiary of the policy, recommends the AICPA.

Charity:

You can name a charity as your life insurance beneficiary. If there's a cause or charitable organization that's near and dear to your heart, you can "donate" your policy's benefit to it when you die.

Multiple beneficiaries:

You may specify that your benefit be divided, for example, in thirds between two children and a surviving spouse. If you choose multiple beneficiaries, you must specify what amount or percentage of the death benefit each beneficiary should receive. Your insurance policy may limit the number of beneficiaries you can select, the III says.

If you do not specify a beneficiary, most life insurance policies typically name a default beneficiary. Usually, the default beneficiary will be your estate, but it's a good idea to check with your insurance provider so you know who the default beneficiary would be on your policy.

Extended family:

While married people typically choose to name each other as their insurance beneficiaries, single people can choose to name anyone who is either related to them or who might depend on them financially.

You may also be able to name a partner or good friend to whom you're not married. However, some states require unrelated beneficiaries to have a financial relationship with you (i.e. share rent or living expenses). That's known as an "insurable interest."

Your business:

You can name your business as your beneficiary, or business partners can name each other as beneficiaries. That way, if something were to happen to you, your partner could afford to buy out your share of the company, or your insurance proceeds could support your company while your heirs look for a new owner.