How to Choose Life Insurance Beneficiaries

It seems that there are rules and regulations for everything connected with the financial world. Choosing Life Insurance beneficiaries is an exception to this.
The only rule on how to choose Life Insurance Beneficiaries is to make sure that your own wishes and desires are what control the decision. The sad truth of this situation is that you are not going to be in any position to influence the distribution of benefits once you are dead, and it is not certain that everyone involved is going to respect your wishes. This is the same reasoning behind a Will and it is valid reasoning.

When you purchase Life Insurance, you are dealing with an area of personal financial planning known as risk management. The risk is that you will die and the result of your death will create financial hardship on someone else. It is the identity of "someone else" that should dictate your choice of beneficiary. You want to make sure that the death benefit proceeds go to those who are dependent on you.

It is important to be very specific in naming your beneficiary. If you designate your estate as a beneficiary, the proceeds will go into probate and be subject to creditors. If you designate spouse, an ex-wife might have a legitimate claim. If you designate "children of the marriage" as beneficiaries, adopted children or step-children might be excluded even if you intended them to share in the benefits. Do not leave anything to chance or misinterpretation.

It is going to be an unusual life that does not undergo major changes during its duration. You do not carve the name of your beneficiary in stone or seal your policy in a vault once it is purchased. It is important to review your policies and your choice of beneficiaries on a regular basis. You are allowed to select back-up beneficiaries, known as contingent beneficiaries. It may be possible that the primary beneficiary predeceases you or dies at the same time. The contingent beneficiary is for this situation.

The meaning of dependent will vary from person to person. No two financial situations are exactly the same. Each person will have their own idea of what risk management means to them. In this era of Whole Life and Universal Life Insurance, many people become more concerned with the investment and earning potential of their life insurance policy and lose sight of its primary goal. The selection of a beneficiary is of paramount importance and should be given serious and ongoing consideration for as long as the policy exists.


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