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What Is a Life Insurance Beneficiary?

Published: February 2015

A life insurance policy can be an important step toward helping to ensure your family’s financial future. When you purchase a life insurance policy to insure your own life, the benefit will be paid out when you die to a person or entity of your choosing, known as a beneficiary, according to the Insurance Information Institute (III).

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How to Choose a Beneficiary

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 child, spouse, charity, or trust, the III says. Keep in mind that certain states place restrictions on whom you may name as a beneficiary, says LexisNexis.

Your primary beneficiary is the person or entity you select that is entitled to the policy’s benefit upon your death. The III recommends you also select a contingent beneficiary as next in line for the benefits in case your primary beneficiary cannot be found or dies. For this reason, it is important that you identify each beneficiary as clearly as possible, including full names and Social Security numbers for all named persons.

You may also choose multiple beneficiaries, according to the American Institute of Certified Public Accountants (AICPA). If you do so, however, you must specify what amount or percentage of the death benefit each beneficiary should receive. For example, you may specify that your benefit be divided in equal thirds between two children and a surviving spouse. Your insurance policy may limit the number of beneficiaries you can select, the III says.

Remember, too, that minors (defined as under age 18 or 21, depending on the state) cannot be named as direct beneficiaries, says the 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.

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 agent so you know who the default beneficiary would be on your policy.

How to Change a Beneficiary

The birth or adoption of children, marriage, divorce, or other altered life circumstances may prompt you to change your beneficiaries. For example, if your spouse is named as a beneficiary on your life insurance policy, some states have spousal revocation statutes that automatically revoke that designation after a divorce.

That’s why it’s important to review your beneficiaries after major life events, or at minimum every three years, to ensure your policy is still in accordance with your current wishes, the AICPA says.

Do not assume that making changes to your will is sufficient to change beneficiaries, says the AICPA. If you wish to alter your policy’s beneficiaries, the AICPA recommends you request a change of beneficiary form directly from your insurer.

Life insurance can be a source of financial security for your beneficiaries when you’re gone. Talk with your agent or a financial professional to help ensure it meets your needs.

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Life Insurance offered through Allstate Life Insurance Company, Northbrook, IL; Allstate Assurance Company, Northbrook, IL; Lincoln Benefit Life Company, Lincoln, NE and American Heritage Life Insurance Company, Jacksonville, FL. In New York, life insurance offered through Allstate Life Insurance Company of New York, Hauppauge, NY.

Please note that Allstate Life Insurance Company or its agents and representatives cannot give legal or tax advice. The brief discussion of taxes on this page may not be complete or current. The laws and regulations are complex and subject to change. For complete details consult your attorney or tax advisor.
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