When you take out life insurance, one of the things you will be asked is who you would like to benefit in the event of your death, i.e. who will your beneficiary be. But while choosing a life insurance beneficiary may seem like a straightforward task, there’s actually more to it than you might think. After all, it’s an extremely important decision for the people who depend on you, and one that can significantly alter their circumstances should you die.
Here are 5 things to consider when choosing a life insurance beneficiary:
1. Remember why you took out life insurance in the first place
The reason why you bought your life insurance policy should ultimately dictate who your beneficiary should be. For example, if you bought your policy to provide financial assistance to your family in the event of your death, then your spouse/partner is probably the best person to choose as your beneficiary.
If the reason you took out life insurance was to provide support for your business, then your business partner may be a better beneficiary.
Remember, you didn’t take out life insurance for yourself. You took it out to help someone or a group of people after you die. Think about whom you want to benefit and narrow down your beneficiary list from there.
2. Understand your options
Did you know that your life insurance beneficiary doesn’t have to be a person, or that it can be more than one person? That’s right!
Your life insurance beneficiary can be one or more of the following:
- A person
- Two or more people
- The trustee of a trust you’ve established
- A charity or non-profit organisation
- Your estate
3. Make sure you have a backup
If the primary beneficiary on your life insurance policy cannot be located, declines to receive the payout or is already deceased themselves when you die, a secondary beneficiary will become the recipient.
That’s why it’s important to always specify a secondary beneficiary. Use the same criteria for choosing your secondary beneficiary as you did for your primary one.
4. Update your beneficiary as needed
Unfortunately, it’s too late to change your life insurance beneficiary after you’re dead. So, should you ever need to do so, make sure you do it in good time.
Now you might be thinking, why would I want to change my life insurance beneficiary? Well, let’s say you’re single and you name your mother as your beneficiary. Then, later on in your life you get married and have children. If you didn’t change your beneficiary, your mother would still receive the proceeds from your life insurance in the event of your death.
5. Check that your will and your life insurance match
Your last will and testament won’t override your life insurance policy when it comes to beneficiaries. For example, if your will says that your wife should receive your life insurance if you die, but your life insurance policy says your mother should, the life insurance policy will prevail every time.
To avoid confrontational situations and the possibility of your life insurance going to the wrong person, always make sure your will and your life insurance policy match when it comes to beneficiaries.
I joined Premier Choice Group as a Healthcare & Protection Consultant in 2017, where I now look after the needs of over 200 clients nationwide. Prior to joining the Premier Choice Group, I worked for a large Private Healthcare Insurer, VitalityHealth, and managed SME and Individual clients across the country.