No matter what age you are today, end-of-life planning is a difficult topic to consider, and even more challenging to discuss with loved ones. But it can be one of the smartest and most valuable decisions you make. It’s also among the most thoughtful things you can do for your loved ones. When it comes to a life insurance policy, while it can provide some additional financial security for you, it’s ultimately a gift for others.
The legal term for those “others” a policy can benefit is “beneficiary.” When you sign up for a life insurance policy, you likely have already in mind the people you want to help protect should anything happen to you: most commonly, your spouse and children, or anyone else who depends on you financially in some way.
You should make sure you’re aware of all the options you have, know how to properly educate your beneficiaries about their role, and consider other factors that could save your loved ones some headaches down the road.
Setting beneficiaries is not a difficult process. You’re able to name as many beneficiaries as you’d like and divide up percentages of the policy benefits accordingly.
There are two types of beneficiaries: primary and contingent. Your primary beneficiaries are those who are set to receive the proceeds of your life insurance policy (also known as the death benefit). A contingent beneficiary is a backup, or secondary, beneficiary. These are added in the event something has happened to a primary beneficiary. You can choose a single person or multiple people for both types, and your options extend further than that as well.
In addition to including one or more of your loved ones (spouse, children, sibling, etc.), you can also designate a trust as a beneficiary (giving you more control of how your assets are used), choose non-profit organizations or charities that you would like to contribute to, or have the benefits go to your estate. AAA Life recommends speaking with a legal or financial advisor if you are unsure about the best option for your situation.
It is a good idea to store your life insurance policy with other important financial documents, so it can be easily located should anything happen to you, or provide your beneficiaries with a copy they can securely file away.
Make sure they’re also aware of tools like the Policy Locator Service from the National Association of Insurance Commissioners which can help locate unclaimed policies in case the physical copies are misplaced.
You will also want to check your beneficiaries at least once per year: vital information like addresses may have changed, and over time, the financial situation of your beneficiaries, or yourself, may change. Should one of your beneficiaries pass away, you should update your policy right away.
While some may recommend against naming your minor children as beneficiaries, if that is your preference, then it is recommended that you consult with an attorney to plan for the policy proceeds to be managed by an adult on behalf of the minor(s). In any event, you should consider consulting with a legal or financial expert on the steps you should take to make sure that your children are protected financially.
Note that this isn’t just advice for your life insurance policy: annuities, other retirement accounts (401Ks, IRAs, pensions, etc.) and bank accounts often allow for naming beneficiaries and should be kept up-to-date.
From the moment of your first interaction with AAA Life Insurance Company, we make a promise to be there when we’re needed most – and that also extends to your beneficiaries.
AAA Life offers resources specifically for beneficiaries, whether they just want to better educate themselves on the role or are getting ready to file a claim. Losing a loved one is a difficult process, but we’ll be there to provide support during an emotional time.
If minor children have been named as the beneficiary of your life insurance policy, then it can become legally complicated.
Life insurance can be used to help charities that are close to our hearts.
The journey toward added peace of mind starts now