Most people purchase a life insurance policy for the death benefit. It is the most crucial part of your policy. The death benefit is the payment that goes to your beneficiaries in the event of your death. But for your dependents to obtain their inheritance from the insurance payout, you will first need to take the correct steps when determining who your beneficiaries are. This is not something you should pay close attention to only when you first purchase your life insurance policy.
Ensuring who your beneficiaries are is a task to keep up with the entire time your policy is in effect. By always making sure your life insurance policy is up to date with your intentions and staying informed with your beneficiaries’ vital details, you will be on the correct path to protecting your life insurance and those you leave behind.
5 Ways You Can Keep Your Beneficiaries Protected
Keeping your life insurance beneficiaries protected is one of the best things you can do to ensure they receive the money as you intended. Again, this is not something you should only pay attention to when you first take out your policy, but something you will need to keep up with over the years. Here are five things you should do to help make sure your dependents receive their funds.
1. Designate a Contingent Beneficiary
When you decide to name your beneficiaries, you first name your primary beneficiary. That will be the individual who will receive the death benefit after your death. What many people do not know is they also need to name a contingent beneficiary. This would be the person who receives the death benefit from your policy if the primary beneficiary can no longer receive it, usually because they have already died.
If there is no contingent beneficiary, the death benefit is paid out to the estate instead. It could leave your beneficiaries in a difficult financial or legal position; for your beneficiaries to receive the money, it will first need to be divided. And sometimes, the outcome does not end up fair for every person involved. To avoid this inconvenience for your dependents, make sure you assign a contingent beneficiary and update this information as needed.
2. Is the Death Benefit Per Capita or Per Stirpes?
One of the most important things about your life insurance policy is if the death benefit is per capita or per stirpes. Unfortunately, many people look into buying a life insurance policy without knowing what these terms mean.
A per capita death benefit will equally pay out the funds to all of your beneficiaries. If you have two beneficiaries listed, for example, and one passes away before you do, the beneficiary still living will receive the full benefit. There are some instances where a per capita death benefit can cause issues. If you list your spouse and your company’s co-founder as your two beneficiaries and your spouse passes away first, your company’s co-founder would receive the full death
benefit. That could be a problem if you had children you might want the funds to go to. But since the co-founder of your business received the entire benefit, your children would be left out.
Because of instances like these, there is the other option of per stirpes death benefits. With this option, if you list your spouse as a beneficiary and they pass away, the co-founder of your business would still only receive a percentage of the death benefit. With only two beneficiaries named, they would receive 50%. However, this amount can be adjusted if needed. The portion of the benefits that were supposed to go to your deceased spouse would go to their heirs — in this case, your children. A per stirpes death benefit will ensure your children remain financially stable even if both guardians have died.
3. Determine the Amount Each Beneficiary Receives
Suppose you have multiple beneficiaries listed and do not want the death benefits to be split evenly among them. You would need to specify what percentage each receives on your policy. If you want one of your beneficiaries, such as your spouse, to receive 70% of your benefits, and another to receive 30%, you would need to state these percentages on your policy. If this information is not specified, the beneficiaries listed will all receive an equal split of the funds.
4. When Life Changes, Make Sure Your Policy Changes as Well
Updating your policy regularly is one of the most important things you can do to protect your beneficiaries. Every time your life changes significantly, such as having a child or getting married, your coverage will need to change. And if you are not taking the time to adjust your policy, the original beneficiaries could end up paying the price. If your spouse is the only beneficiary and they pass away before you do, instead of the death benefits going to your children, it will go to your estate because there is no one living to accept the payout. That could prohibit your children from getting the funds and may put their financial future in danger. Always make sure you update your policy regularly to take care of changes you may have overlooked.
5. Provide Your Beneficiaries with a Successful Future
To ensure that your beneficiaries are fully protected, they will need clear information about the life insurance policy you take out. Life insurance benefits are not automatically paid out by the insurance company when you pass away. Your beneficiaries will need to file a death benefits claim to receive the funds. To save your loved ones from hardships, be sure to inform them about your life insurance policy and your intentions for your death benefits early on. Your loved ones will need information about your policy to initiate a claim. They will need to know the insurance company’s name and your full name to help then locate the policy. Providing them with these facts will make obtaining death benefits much easier for everyone involved.
Building a proper life insurance plan starts with finding the right coverage to protect your loved ones, but ensuring that you have properly assigned and informed your beneficiaries is also crucial. Many times, if beneficiaries don’t have the knowledge that an insurance policy exists, they may never submit the claim and receive the payout. Communication is key so that your loved ones will receive the financial support that you have so thoughtfully provided with life insurance. Our licensed team of professionals at Hometown Life Insurance are here to assist you in finding the right coverage and guiding you in the other steps you should take to ensure that your coverage reaches the proper hands of your loved ones.
