Life Insurance
Choosing your beneficiary
Mar 19, 2020
mother and daughter laughing

Here at Ethos, we aim to make life insurance simple––and that includes choosing the beneficiary on your policy. A beneficiary is a person, people, or entity who will receive your death benefit if you die within the term of your life insurance policy. As the policy owner, you can choose who to designate as your beneficiary (or beneficiaries).

Your decision may be a bit complicated if you have many family members or others who depend on you financially. Choosing your beneficiary is a decision that requires careful thought and consideration. It should not be treated as just another box to check off in the application process. Let’s explore the process behind choosing your beneficiary.

If You’re…

Married With Children

Naming your spouse as your primary beneficiary is the most common choice. If both you and your spouse name each other as primary beneficiaries, then the benefits would be readily available for your surviving spouse and children to use. You may name contingent beneficiaries on your life insurance policy, such as designated guardians for the kiddos, should both you and your spouse pass away.

Married Without Children

Again, naming your spouse as your primary beneficiary is the most common choice. Doing this ensures that your spouse will not suffer financial hardship in the event of your passing. A contingent beneficiary (should your spouse also pass) could be a parent, sibling, or close friend. Other options may include a charity that you support.

Note: If you prefer not to name your spouse as your beneficiary, they still may have a claim to a portion of the benefits if you live in a community property state. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Consult with your tax advisor or financial planner for details.

A Single Parent

If you are considering naming your child as your primary beneficiary, keep in mind that life insurance companies cannot legally disburse the money to minors. This means that the funds will be transferred to the child’s legal custodian, according to the Uniform Transfer to Minors Act. It’s a good idea to name a custodian at the same time that the child is designated as a beneficiary on your life insurance policy. If you would prefer not to appoint a legal custodian for your child, you can opt to name a trust as your beneficiary. The policy proceeds will be payable to the trust, where the trust will manage the funds accordingly. For more information regarding trusts, consult with a professional with experience in trust drafting.

Single Without Children

Don’t have kids or a spouse? There might still be someone in your life who would experience financial hardship in the event of your passing. If so, you could consider naming them as your primary beneficiary. Did a parent, grandparent, or other family member cosign on your mortgage or student loans? Naming them as your beneficiary could enable them to shoulder the financial burden of the agreement if you unexpectedly pass away while your life insurance policy is in force.

Other Important Factors to Consider

You are not limited to choosing just one beneficiary. In the event that you name multiple beneficiaries on your policy, each primary beneficiary would receive a portion of your life insurance payout that you designate. You can also name contingent beneficiaries. These individuals will receive your death benefit if your primary beneficiary is no longer around to accept it. Depending on the administrative systems used to support your policy, you can name as many primary beneficiaries and as many contingent beneficiaries as you want to ensure that all of your bases are covered.

Regardless of who you choose as your beneficiary, it is essential to inform them in advance. Don’t leave them among the millions of Americans with unclaimed life insurance benefits. Talking about death isn’t fun, but having the conversation ensures that you are both on the same page. Use the discussion as an opportunity to gather the information you need from them, such as their current address, social security number, and date of birth. Their information will ensure that the carrier can easily identify them when they file a claim or locate them if a claim has not been made following your death.

Have a question about choosing your beneficiary that we did not cover? Add our Definitive Guide to Life Insurance to your reading list.

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