One of the worldās most influential fashion moguls passed away and may have dedicated part of a $300 million fortune to his pet cat . This had a lot of people undoubtedly thinking, āWho would I leave everything to if I died unexpectedly?ā
While there are many ways to ensure the loved ones you leave behind are taken care of, financial security is a top priority in estate planning. One of the core avenues of providing this coverage is through a life insurance policy. Not only can this coverage be used to cover major expenses such as funeral costs or outstanding debt, but it can also provide longer-term support like supplementing income lost with the passing of a breadwinner. Regardless of life stage or family structure, if you have people who depend on you, purchasing a life insurance policy guarantees them financial support should something happen to you.
Then thereās the task of determining who in your circle needs this coverage, how much of it and for how long. Do you have a spouse or partner who depends on you? Do you have children that need to be taken care of? Will your parents be covered? Choosing a beneficiary isnāt always a clear-cut decision, and there are several core factors that should guide your elections.
Age does matter.
It makes sense that a parent would prefer to name a non-adult child as a beneficiary because of their lack of income; however, it is important to think about the process that comes with that decision.
Naming a minor as a beneficiary will provide much-needed coverage, but keep in mind they will not have access to the funds until they are 18 or 21 years old. If they need to retrieve the assets in the policy prior to reaching adult age, the funds will have to be left in the hands of a guardian. You also have the option of leaving the policy to the acting legal guardian of your non-adult children from the outset.
As time goes on, your family may depend on your financial income less and less, which is where noting the difference in whole and term life policies plays an important role. If financial coverage is needed most when your children are of a certain age, electing a term life policy allows you to control that. A term policy will only be paid out to your beneficiary if you pass in a fixed span of years (e.g., 10, 20, 30-year policy). Whereas, whole life insurance lasts, well, your whole life. Your children will likely be grown, but through them, those funds can also support the next generation of your family through your grandchildren.
You can designate multiple beneficiaries.
You may have a number of people who are dependent on your income or who would struggle in the case of your absence. If youāre having a hard time choosing between a spouse, parent or child, keep in mind you can select multiple beneficiaries. These elections can also vary in coverage, allowing you to choose the appropriate portion of your policy designated for each beneficiary you name.
If you are inclined to leave your policy to just one person, be sure to have a backup. This means that when youāre assigning your beneficiary you are able to designate both a primary and a contingent beneficiary. A primary beneficiary is an initial person you leave your life insurance policy to, whereas a contingent is the second in line to inherit the policy in the case of your primary beneficiaryās passing. Whether it be a permanent life policy or a term life policy, your life insurance policy will go to your primary beneficiary or beneficiaries if they outlive you.
Your choice in beneficiary is unique to you and should align with the unique needs of your family. Ā
Your beneficiary designations can change.
So, youāve made your decision on who those beneficiaries should be, but a few years down the road life happens and priorities change. Life insurance inherently understands this unpredictability, which is why beneficiary elections are not set in stone. Policyholders are able to update beneficiaries in the case of major life changes. However, if you are making changes and also have your life insurance policy included in your will, those beneficiary elections need to match.
Traditionally, the entire process, including making a change like this, has required mounds of paperwork, long wait periods and difficult procedures. The good news is, the insurance industry is starting to see a rise in technology innovations that are eliminating these mundanities for consumers. Digital life insuranceĀ companies are streamlining how people purchase life insurance, making even the smallest adjustments like changing your beneficiary possible with the simple click of a button.
Choosing a beneficiary is an essential part of the life insurance process. Itās important to remember that beneficiaries should be those who would be most impacted in the event of your passing. Your life insurance policy is about the people you leave behind, so choose wisely.