Five Things to Consider Before Naming Your Beneficiaries

Kim Solis | Mar 23, 2022 | minute read

Five Things to Consider Before Naming Your BeneficiariesFinancial planning entails more than just thinking about putting money aside for a rainy day. Many of us have worked hard for years to build up our assets including bank accounts, life insurance, investments, and retirement accounts.

All these investment vehicles may have required us to name beneficiaries for each account. Because these direct beneficiary choices take precedence over a will, they should be rigorously evaluated and managed with an estate plan.

The First Thing to Remember

Select dependable trustees and custodians

Because trustees will oversee the fiscal management of the insurance proceeds for your beneficiaries, it is vital that you choose your custodians or trustees carefully.

A custodian is responsible for keeping track of, and safeguarding, funds bequeathed to a minor through a life insurance policy. The custodian is responsible for utilizing the insurance profits in a manner that serves the beneficiary’s best interests until the child legally becomes an adult at the age of 18 or 21 (depending on the state).

Some people prefer to create a trust to hold the proceeds of their life insurance policies for their beneficiaries. You can decide how the assets held within the trust will be managed and used after you pass away. The named trustee (someone you trust) will oversee the trust’s management and distribution in accordance with your preferences.

Free Guide: Stop Bidding Your Insurance. Find A Partner

Selecting Your Beneficiaries

When naming the beneficiary or beneficiaries for your life insurance policy, make sure to follow these guidelines to ensure that your life insurance proceeds are available to your family immediately, and that your wishes for your loved ones are clear.

1. Keep the Policy’s Goal in Mind

Your decision should be guided by the reasons for which you are purchasing life insurance. Do you wish to leave a financial legacy for your loved ones? If that is the case, your spouse or family member might be the best beneficiary option. Is your purpose for life insurance to keep your business going? Then your business partner might be the beneficiary choice.

2. Be Aware of Unusual Circumstances

The proceeds from life insurance benefits are generally not required to be declared as gross income. Life insurance can be a smart inheritance instrument and a shrewd approach to optimize your beneficiary’s payout amount. Certain circumstances, however, may result in a tax on the life insurance benefit.

3. Make Sure Your Paperwork Is Up to Date

If you already have secured a life insurance policy or policies, be sure that all the documentation is up to date. If you die without having updated versions of these documents on file, the uncertainty may cause conflict among your children, siblings, and others, leading to litigation. By documenting these decisions now, you will spare your family additional grief in the future.

Selecting Your Beneficiaries

4. Have A Backup Plan

The primary beneficiary on your policy is the person(s) or entity you choose to receive the life insurance proceeds if you die. If your primary beneficiary cannot be found, declines the proceeds, or is deceased when you die, a secondary (or contingent) beneficiary becomes the beneficiary. Make sure you choose a secondary beneficiary according to the same guidelines as you did for the primary beneficiary.

5. Understand Your Choices

There are more possibilities than your spouse or children when it comes to selecting a beneficiary. In general, any one or more of the following can be designated as a beneficiary.

  • One individual
  • Two or more individuals (and you decide how the benefit is divided among them)
  • A trustee for a trust you have created
  • A charity or a non-profit organization
  • Your estate

While it is never pleasant to talk about death, now may be the best time to make sure you have covered your family’s future needs with the proper end-of-life plan. By spending a few hours taking care of business now, you and your loved ones can enjoy the peace of mind that comes from knowing you are prepared for the unexpected.

Free ebook: Stop Bidding Your Insurance: Find a Partner

Free eBook | Stop Bidding Your Insurance

Leap | Carpenter | Kemps Insurance Agency Can Help

Protecting your family’s future is a big responsibility, but we can make it easier. When you work with Leap | Carpenter | Kemps Insurance Agency, you can rest assured that just like you’ve got your family’s back, we’ve got yours. We offer the most extensive range of life and health insurance options in the region. Contact us today.

Share This Blog

Like our content? Subscribe to Our Blog!


Related Articles

In today’s swiftly changing work environment, more...

When you become disabled due to an illness or inju...

About The Author

As the Employee Benefit’s Department Manager at Leap | Carpenter | Kemps Insurance Agency, I use my 20 years of insurance expertise and background in Human Resources Management to find the best policies for both business owners and their employees.

Need more Specific Advice?

Tell us about your exposures, and we'll write an article about how we would mitigate your risk.