A life insurance beneficiary is the person or entity designated to receive the death benefit from your life insurance policy after your passing. You can typically name multiple beneficiaries and specify the percentage of the benefit each will receive. Beneficiaries can be:
- Individuals: Family members, friends, or business partners.
- Entities: Trusts, charities, or even organizations.
- Contingent beneficiaries: Secondary beneficiaries who will receive the benefit if the primary beneficiary is no longer alive.
How Often Should You Review Your Beneficiaries?
It's important to review and update your life insurance beneficiaries regularly. Some key times to reassess them include:
- Life Changes:
- Marriage or Divorce: You may want to add your spouse or remove an ex-spouse as a beneficiary.
- Birth of Children: You may wish to include a new child or update the share of beneficiaries.
- Death of a Beneficiary: If your primary beneficiary passes away, you need to update your policy to ensure the benefits go to someone else.
- Significant Changes in Relationships: If you’re estranged from someone named as a beneficiary, or if your relationship with someone else has evolved, it might be time to reconsider.
- Regular Checkups: Even if you don’t experience a significant life change, it's good practice to review your beneficiary designations every 3-5 years. This ensures that the information remains up to date with your intentions.
- Changes in Financial or Legal Status: If you’ve made changes to your will, financial plans, or have a significant change in assets, revisiting your beneficiary choices is wise to ensure everything aligns.
How Easy is it to Change Your Beneficiaries?
Changing a life insurance beneficiary is typically straightforward. Here’s how it works:
- Contact the Insurer: You will need to get in touch with your life insurance company. They often provide a beneficiary change form that you can fill out online or by mail.
- Submit the Form: Complete the form with the new beneficiary's details, and submit it to the insurer. Depending on the company, this may be done by filling out an online form, faxing a hard copy, or submitting it through your account on the insurance company’s website.
- No Cost or Medical Review: Changing beneficiaries doesn't typically require a medical review, and there is no additional cost involved.
- Confirmation: Once the insurer processes the change, they will provide confirmation in writing that your beneficiary designation has been updated.
Important Considerations When Changing Beneficiaries
- Irrevocable vs. Revocable Beneficiaries: If your policy has an irrevocable beneficiary, you cannot change them without their consent. This is often used for certain trusts or court-ordered arrangements (like in divorce settlements). If the beneficiary is revocable, you can change it without needing their approval.
- Clear Designations: It's important to be as specific as possible in your beneficiary designations. For example, specify full names, relationship to you, and the percentage of the benefit each person will receive. Ambiguous language can create confusion or legal disputes.
- Impact on Estate Plans: Your life insurance policy and beneficiary designations can supersede your will. For example, if you name someone in your will to receive the life insurance proceeds, but your beneficiary designation directs it to someone else, the life insurance policy will pay out to the designated beneficiary. This is why it's important to keep both documents consistent.
Conclusion
Regularly reviewing and updating your life insurance beneficiaries is essential to ensure that your benefits go to the right people or organizations according to your wishes. Fortunately, changing a beneficiary is easy and straightforward, often involving just filling out a simple form and submitting it to your insurer. Make sure to review your designations in response to significant life events and periodically to maintain alignment with your evolving life circumstances.
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