Understanding Life Assurance Beneficiaries

Life assurance is meant to do your loved ones a great financial service in your absence, but if you don’t designate a beneficiary it can be very difficult for them to successfully file a claim. Depending on the company with which you have a policy, as well as where you live, the rules about selecting  beneficiary may be different. For instance, some local laws say that you must designate a spouse as a beneficiary unless he signs a waiver and lets you name someone else. In other cases, you may have more freedom when choosing your beneficiary. Here are the basics when it comes to understanding life assurance beneficiary issues.

Primary Beneficiaries
The primary beneficiary is the person to whom your policy will pay funds after your death. If this person dies before you, the next of kin for your primary beneficiary can’t step in as a proxy. For this reason, it’s important to keep your policy’s beneficiary up to date. As a general practice, review your policy at least once per year and make any necessary changes. If the primary beneficiary on your life insurance policy is a minor child, a trustee will usually be appointed to handle the finances until the child reaches a certain age.

Contingent Beneficiaries
A contingent beneficiary will only be used if the primary beneficiary can’t collect the funds, such as when he has passed away or can’t be located. This type of beneficiary is sometimes known as a secondary beneficiary, and it can be someone in your family or a close friend, provided that person would be responsible for your final expenses if you die. Some policy holders may have a spouse as the primary policy holder and their eldest child as the contingent beneficiary. This protects your children if you and your spouse should pass away at the same time.

Revocable Beneficiaries
Many beneficiaries are considered revocable. This means that if you want to change the beneficiary at any time, all you have to do is fill out and file a form as the policy owner. If you get divorced, for instance, you may want to change the name of the beneficiary to another family member instead of your ex-spouse. However, you don’t need to have a particular reason to change the name as long as the beneficiary is revocable; as the policy owner you are allowed to use your own discretion for who is the beneficiary.

Irrevocable Beneficiaries
In certain cases the beneficiary will be irrevocable, which means that you won’t be able to simply fill out a form on your own to change the beneficiary on the policy. When the named beneficiary is irrevocable, both you and the beneficiary must agree to have the name changed and fill out the necessary paperwork. Because this type of policy is the most restrictive, it’s rarely the most ideal option. Fortunately, most policies have a revocable beneficiary policy so you can change the name whenever you need or want to.

Consequences of No Beneficiary
If there is no named beneficiary at the time of your death, or the primary beneficiary has already died, your family may have to endure a long legal process to get a policy pay out. An estate trustee or other court appointed person will have to make attempts to collect money from your life insurance company. Similarly, if you have multiple beneficiaries there can be complications unless they are explicitly outlined as primary and contingent. If you have more than one primary beneficiary, you can ask that the money be distributed on a per capita basis, so each person will get an equal share of the life insurance payment.

Life assurance will help your loved ones not only cover the expense of your funeral expenses, but also continue to be able to get by on a day to day basis with the loss of your income or pension. Choose your beneficiary carefully, as this person will be trusted to responsibly handle the funds he receives from your life insurance policy. When in doubt go over your policy in great detail with an insurance agent and financial planner so you know the money will go to the best beneficiary available.

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