Last updated: July 19th, 2022
Reviewed by
Grant Desselle
Licensed Insurance Agent
You purchased a life insurance policy to take care of the ones you love after you die. But what if that day were tomorrow? How can you be sure the benefits of your policy will wind up in the right hands? Naming a beneficiary is the first step in making sure your proceeds go exactly where you intended. Here are some important things to consider to be sure your beneficiary gets paid.
Table of Contents
First and foremost, you should name a beneficiary on your life insurance policy. You can have a primary beneficiary and a contingent, or secondary, beneficiary.
The primary beneficiary is the person or persons you name to receive the life insurance proceeds when you die. The contingent beneficiary, as you may have guessed, is the person or persons you name to receive the life insurance proceeds in the event the primary beneficiary passes away before, or at the same time, you do.
When you name your life insurance beneficiary, remember to:
Typically, you will want to name a relative or close friend as the beneficiary on your life insurance policy, but there are other options.
You can name your estate as the beneficiary to help pay the taxes and other settlement costs of your estate, with any remaining money being distributed according to the terms of your will. If you don’t have a will, your state laws will dictate the distribution of your life insurance proceeds.
There is a disadvantage in naming an estate as your beneficiary, however. The life insurance proceeds may increase the amount of estate taxes that are payable. They may also be subject to probate attorney’s fees and creditor claims.
To avoid these costs, you can name a relative as the beneficiary and request that the proceeds first go to settling your estate.
You could also name a charitable organization that is not your employer as a beneficiary. You will need to indicate the name of the charitable organization along with a contact name, their tax identification number, and just as you would with a person, the percentage of the benefit that would be payable to them.
Another type of beneficiary could be an irrevocable life insurance trust. This option gives you more control over your insurance policy and the money that is paid from it. It also lets you reduce or even eliminate estate taxes, so more of your estate can go to your loved ones.
Contact True Blue Life Insurance at 1-866-816-2100 to discuss your options for naming a beneficiary on your life insurance policy.
You should also be aware of something called a Community Property State Consent. This is for residents of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
If you are married and living in one of these community property states—and you name someone other than your spouse as your beneficiary—you may be required to have your spouse sign to waive his or her rights to any community property interest in the benefit.
If you don’t name a beneficiary on your life insurance policy, the proceeds are usually paid to the aforementioned estate automatically—unless you indicate otherwise in the policy. Obviously, the best solution is to simply name a beneficiary.
Insurance companies usually require that beneficiaries file claims, along with a certified copy of the death certificate, to receive the benefits from a life insurance policy. The insurance agency may have you fill out a claim form or additional forms reporting the death. In some cases, an insurance company adjuster may contact you with a few routine questions. This is merely a safeguard against insurance fraud and should not be considered out of the ordinary.
Many insurance companies will issue a payment between one and two months from the date of the claim.
Of course, sometimes the proceeds go unclaimed because policy documents were either lost or because beneficiaries didn’t even know a life insurance policy existed.
Often it’s best to leave stuff like this to industry experts.
State insurance regulators have been looking into the practices of large insurers and have urged them to proactively identify those policies that may be due for a payout.
The best way to avoid any potential problems with a life insurance payout is for you to discuss the policy with your beneficiaries. Oftentimes, an insurance agent will get a call from someone who thinks a deceased relative had a life insurance policy, but they are not certain and they don’t know how to find the policy.
In a New York Times article, Rosanne Placey, a spokeswoman for the Pennsylvania insurance commissioner, said:
“We always tell consumers to inform their beneficiaries of the policies. A policyholder should keep copies of a policy at an off-site location—such as in a safe deposit box, or with a lawyer or financial adviser—and make sure the beneficiaries know where the documents are kept and how to get access to them.”
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.
