When applying for life insurance coverage, one of the biggest decisions that needs to be made is who will be the beneficiary. There are numerous options that can be chosen. These will depend primarily on the financial needs of potential beneficiaries, as well as the overall purpose for the life insurance coverage.
A life insurance policy beneficiary is the person or the entity that will receive the policy’s death benefit proceeds upon the passing of the insured. The receiver of these funds can be chosen for either personal or business related reasons.
Potential Life Insurance Beneficiary Options
Prior to selecting the beneficiary (or beneficiaries), it is important to understand exactly who, or what, is allowed to be named. The most common beneficiaries typically include:
- An Individual (or Individuals) – It is allowable to name one or more individuals as a life insurance policy beneficiary. In many instances, a policy holder will choose a spouse, a child (or children), or other loved ones who may suffer a financial loss upon the death of the insured. The life insurance proceeds can be used by such individuals for future living expenses, for paying off large debt such as a mortgage or higher education loans, and for other needs as they see fit. The death benefit proceeds are also oftentimes used in paying the insured’s final expenses such as the cost of his or her funeral and burial plot. While beneficiaries are not meant to profit from the insured’s death benefit proceeds, these funds are in place for the purpose of helping them avoid any undue financial hardship.
- The Insured’s Estate – Oftentimes, an insured will have the proceeds from his or her life insurance policy go to their estate. In doing so, the funds are typically used to help in paying off large estate taxes that may be due following the insured’s death.
- A Trust – The beneficiary of a life insurance policy may also be a trust. Trusts are often used in estate planning. Here, the proceeds of a life insurance policy will need to be administered by a trustee. In some instances – and depending on the type of trust that is established – the policy proceeds could actually be excluded from the estate and go directly to the trust. This means that the amount of the death benefit will not be used in the overall value calculation of the estate – essentially reducing the amount of estate taxes that are due. This alone could potentially save an insured’s heirs a substantial amount.
- Charity – There are many individuals who regularly donate to a favorite charity. These individuals may also decide to make a donation upon their death. By making a charitable organization the beneficiary of one’s life insurance policy, the proceeds will typically go to the charity tax free. This can make the donation even more beneficial to the charitable entity.
The Different Levels of Life Insurance Policy Beneficiaries
When choosing a life insurance policy beneficiary, it is possible to name more than just one person or entity. The proceeds from a policy can also be split into various percentages as well, meaning that if there are two named beneficiaries, proceeds could be split 80/20, 60/40, or in any other combination.
There are also different levels of beneficiaries. For example, an insured may have selected a specific beneficiary, however, if the beneficiary passes away before the insured, the proceeds would fall to the beneficiary that is next in line. Therefore, another beneficiary is oftentimes chosen who will receive the proceeds should the original beneficiary be unable to do so.
The different levels of beneficiaries are as follows:
- Primary. The person or entity that is chosen to receive the death benefit first is considered to be the primary beneficiary. This individual or entity will receive the proceeds should they be able to at the insured’s death. There may be more than one primary beneficiary.
- Secondary. The beneficiary that is next in line to receive the proceeds should the primary beneficiary be unable to do so is called the secondary beneficiary. Another name for the secondary beneficiary is the contingent beneficiary.
- Tertiary. Next in line, should a policy holder choose to name one, is the tertiary beneficiary. This person or entity will receive the life insurance policy proceeds should both the primary and the secondary beneficiaries be unable to do so.
Calculating Your Life Insurance Needs
Aside from picking the right life insurance beneficiary, it’s vital that you purchase enough life insurance coverage for your loved ones. Not having enough protection could leave them with leftover expenses and no money to pay off those bills. Before you apply for a life insurance plan, it’s vital that you calculate what your life insurance needs are. There are several different factors that are going to go into the life insurance equation.
The first thing that you should look at is your debts and all the final expenses that you would leave behind to your loved ones if you were to pass away. If something tragic were to happen to you, all of those debts are going straight to your family, which can put them with a mountain of debt. Before you apply for life insurance, add up your mortgage, car payments, student loans, and every other debt that you have. The primary goal of your life insurance is to give your family the money that they need to pay off those bills.
The next number that you should look at is your annual salary. The secondary goal of your life insurance is to replace your salary if you were to pass away. If you’re one of the main income earners in your home, they would suffer financially if anything tragic were to happen to you. Your life insurance will give them the money that they need to pay for basic expenses without struggling financially.
Getting Affordable Life Insurance
One of the most common reasons that people don’t’ purchase a life insurance plan, is because they assume that it will be too expensive to fit in their budget, but that couldn’t be further from the truth. In most cases, a life insurance policy is going to be much more affordable than you might assume. There are several things that you can do to ensure that you’re getting the best rates for your insurance protection.
Before the insurance company gives you life insurance coverage, they’re going to require that you take a medical exam (unless you buy a no medical exam plan), and the results from the exam are going to play a huge role in how much you pay for your insurance plan. The better the results, the lower the premiums. If you want to save more money, you’ll need to improve your health.
The first thing you should do is to start a healthy diet and start getting regular exercise. Both of these can help you lose any extra weight as well as lower your blood pressure, cholesterol, heart rate, and much more. All of these are going to translate into lower monthly premiums, which means more money in your pocket.
The next thing that you should do is eliminate any tobacco that you currently use. If you’re listed as a smoker on your life insurance application, you can expect your premiums to go through the roof. In fact, smokers pay twice as much for their life insurance coverage versus what a non-smoker pays for the same size policy.
The best way to ensure that you’re getting the lowest insurance rates is to work with an independent insurance agent, like ours. Unlike a traditional agent, our independent agents work with dozens of excellent life insurance companies across the nation and they can bring all of the lowest insurance rates directly to you. Each insurance company is different, which means that every insurance company is going to give you different rates for a life insurance policy. You could get drastically different rates depending on which company that you choose. Finding the right company could save you hundreds of dollars on your life insurance coverage. If you’re looking for pre existing condition life insurance or maybe elderly life insurance, we can guide you in your search.
If you have any questions about picking a beneficiary or getting the lowest rates on your life insurance, please contact one of our agents today. We would be happy to answer those questions and help connect you with the plan that’s going to fit your needs and your budget.
You never know what’s going to happen tomorrow, which means that you should wait any longer to get a life insurance policy for your beneficiary. Not having life insurance could leave your loved ones with a massive amount of debts and final expenses, which can leave them with financial strain. That can make an already difficult situation a thousand times worse. We know that deciding between a beneficiary and finding the perfect plan can be a long and difficult process, but our agents are here to make the process as smooth and simple as possible.