The term beneficiary is a common English word and it’s often associated with insurance. However, not many understand the entire concept of a beneficiary and its purpose. In simplest words, a beneficiary is a person(s) or element that you assign to get the assets after you die. For your beneficiary, you have the choice of naming one or more people, a charity, your estate, or a trustee of a trust you’ve set up. Without a beneficiary, all of your death benefits will go to your estate. Even so, your beneficiary is different and can be isolated from your last will. More often than not, you will be asked for a beneficiary if you have any of these accounts:
- Annuity contracts
- Life insurance policies
- Pension benefits
- Individual retirement account (IRAs), 401Ks, and similar retirement plans
Choosing your beneficiaries
There are two kinds of beneficiaries— primary and secondary. Your primary beneficiary is your first-named beneficiary. This person is often a spouse of the insured. The primary beneficiary typically gets the total policy benefits. The secondary beneficiary is your plan B in case that primary beneficiary is unavailable or isn’t willing to accept the benefits. If the primary beneficiary dies before the insured, then the benefits automatically go to your secondary beneficiary.
There are several reasons why you need to pick a beneficiary. First of all, having a designated person will help avoid any conflict in the future. There are no doubts and confusion as to who gets what if you die. Aside from that, it’s also more efficient to have a named beneficiary before you die so that the transfer of assets is faster. Without a beneficiary, the transfer of assets will have to be postponed after you die.
Can I change my beneficiary for my life insurance policy?
The quick answer is yes. If you change your mind and you want to change your primary or secondary beneficiary later on, then you are free to do so. However, if your beneficiary is ‘irrevocable’ then you will need their agreement before you can make any changes to their benefits.
Are an heir and a beneficiary the same thing?
An heir and a beneficiary are different. The heir is a relative who is legally entitled to get an inheritance from a relative who passed away if he/she didn’t have any legal last will and testament. Without the will, the estate is typically passed on to the closest living relatives. While the partners or spouses aren’t considered heirs, they’re still the first in line to get assets via marital or community property laws. The beneficiary, on the other hand, doesn’t have to be an heir. It can be a friend, a long-term partner, a grandchild, a stepchild.
If you are planning to transform or add more beneficiaries into your insurance policy, then you need to reach out to your insurer about it. If you don’t have any beneficiaries, then you might want to add one. It may not be a person, it can also be a charity or a trustee.
If you have questions, you can always ask one of our agents here at London Insurance Agency. Our agents are connected to multiple companies to ensure that you get the best offer there is. Call us today!