Naming beneficiaries in your will and on your life insurance policy is an incredibly important decision, not only to ensure that the money and assets go where you want them to but also to ensure that the people you care about will be taken care of in the event of your death. While this might seem like a simple and straightforward process there are a few things you need to be aware of before making this decision:
Decide on Who
When picking your beneficiary (or beneficiaries) think about who most would be financially affected by your death. If you have a spouse or kids then the answer might seem obvious, but if you don’t, you will want to first consider anyone who might currently depend on you financially or who might incur the costs associated with your death. If you want to have multiple beneficiaries consider how you want the money to be split, and if you would want their estate to receive it instead in the event that they die before you. Try to be as specific as you can in your instructions. Additionally, you might want to consider naming a contingent beneficiary should your primary die or not want to accept the money.
Know the Difference between Revocable and Irrevocable
When putting your plan into place think about if you want each beneficiary to be revocable or irrevocable. An irrevocable beneficiary cannot be changed without their consent nor can they be denied pay-out from the plan. A revocable beneficiary gives you much more freedom to change it whenever you wish as you can do so without having to consult your current beneficiaries.
Keep Up to Date
Throughout your life your circumstances are likely to change many times, and it’ll be important to you to make sure your policies are kept up to date in order to reflect those changes. When you update your will make sure you also remember to update your life insurance policy as what’s written in that policy will override any different wishes you might have made in your will. To avoid any confusion, it’ll be much easier for you to update everything at the same time.
Know the Laws Where You Live
Knowing the laws of where you live, both state and federal, is important as it can affect who you will name and what will be paid out. Some states require you to name your spouse as the beneficiary of your life insurance policy, so you would need their written consent in order to name someone else. If you plan on naming a minor as your beneficiary from your life insurance there might be laws in your state explicitly stating what a minor is allowed to receive. Additionally, consider if the beneficiaries you wish to name rely on some government benefits. If they do, naming them might affect them negatively financially as it could decrease or eliminate what benefits they are eligible for due to the added income from your estate.