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 selecting the plan you want to apply for, you’ll need to make sure you are buying enough insurance for your families needs. Use our guideline to calculate an estimate of the correct face value.
The number one calculation to make is current and expected debts, and the average cost of a funeral in your area. When you or the insured passes away your family will have a certain amount of time to pay off car debt, student loans, or even a mortgage! If your policy does not cover most of these then they’ll have a large amount of debt to take care of and could lead to a lot of stress.
Another amount to add to your face value is your annual salary. The secondary impact you want your policy to provide is replacing that salary once you were to pass away. Even if you aren’t the highest income earner of the house, losing any amount of annual income could change the lifestyle your family is used to. Make the smart decision of adding three to five years worth of salary to your policy to give your family a little bit of breathing room as they work to replace and adjust to a new lifestyle.
Getting Affordable Life Insurance
Most prospective buyer think that getting enough life insurance to cover what they want will be out of their budget. Don’t be one of those people! There are plenty of options to fit your needs and a lot of carriers have flexible plans so you definitely can find something of great value. We are also gonna share a few tips on how to keep the monthly premiums low!
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 depending on your results the premium you were originally quoted could go up or down. The better your results are, the lower your monthly cost will be, so start improving that 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.
We also advocate for no use of tobacco. Not only is it harmful to your health and can lead to an early death, but life insurance companies most always automatically double the monthly premium you will pay compared to those applicants who indicate they do not use tobacco.
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.