Things to Consider Before Naming Your Beneficiaries
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People who take life insurance policies should name their beneficiaries, to be benefitted from the death benefit of the insurance scheme. Every life insurance policy will require at least one primary beneficiary and there can be secondary beneficiaries as well. If the primary beneficiary is not alive to receive the death benefits of the insured, all the benefits will be transferred to the secondary beneficiary.
Things to Consider Before Naming the Beneficiaries
Before naming the beneficiaries of the policy, one has to ascertain the purpose of the policy and consider all possible beneficiaries, other than the spouse and the child. The purpose of the policy and its nominees should be clear. The primary beneficiaries of the insured could be the parents, spouse, and children. Other important things to consider while naming beneficiaries are as follows:
1. Keep the Beneficiary Information Up to Date
The information about the beneficiaries should be kept up to date. Some people can change the beneficiary after marriage and should keep the insurance provider updated regarding such information. The policy should name the person correctly and general terms such as ‘my wife’ and ‘my children’ should not be used.
2. Do Not Neglect to Name a Beneficiary
Refraining from naming the beneficiary of the policy is also a wrong practice. Neglecting to name the beneficiary can give way for default provisions in the life insurance policy, and the end beneficiary will not be the one the insurer had in their mind. This will result in unnecessary legal battles and emotional trouble.
3. Failing to Name a Contingent Beneficiary
Some policyholders will name only the primary beneficiary and not contingent beneficiaries. In such instances, if the primary beneficiary dies before the policyholder, then it is equal to not naming the beneficiary at all.
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4. Do Not Name Minors as Beneficiaries
It is not a good idea to name minor children as beneficiaries for a life insurance policy until they reach the age of maturity. This is because minors cannot receive the proceeds of the insurance policy and it is important to name a guardian to acquire the assets. The state will take over all the assets if the guardian is not named to possess the sum assured until the minor attains 18 years of age.
5. Naming A Charity as A Beneficiary
Life Insurance policyholders can also name a charitable institution such as a temple, college, school, or hospital as a beneficiary of their death benefit. But the claims settlement process will go through a probate process.
Thus designating a beneficiary for the life insurance policy is simple and costs nothing. Policyholders should file the appropriate form (as expected by the insurance company) and submit it to the life insurance company. But it is important to make sure that all beneficiary information is correct and current.
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Bottom Line
Life insurance benefits are generally not governed by one’s will and the only way to make sure that the benefits of the policies are distributed to the nominees is by naming the beneficiaries appropriately. It is mandatory to do so and it is also the main reason why people buy life insurance in the first place.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
