Part of any good retirement plan is making sure your loved ones will be taken care of after you have passed on.
When you take out a life insurance policy, final expenses insurance, or any form of insurance you will have to name at least one beneficiary.
This is the person who receives the payout should you die. This is a decision you have to think extremely carefully about. However, there are some policies that allow you to name more than one beneficiary.
This guide will discuss the issue of beneficiaries.
Primary and Contingency Beneficiaries
There are two types of beneficiaries. The first one is the primary beneficiary. This is the main person named on the policy who will receive the payout should you die. They will receive it in full. A contingency beneficiary, on the other hand, is simply a substitute. In other words, if something happens to the primary beneficiary the contingency beneficiary will receive the payout instead.
How Many Can You Have?
There are technically no limits to how many beneficiaries you can have on your final expense insurance. It depends entirely on your policy and the insurance company in question. Your life insurance policy will most likely have one primary beneficiary and one contingency beneficiary. It’s reasonably rare to have more than a single contingency beneficiary simply because it isn’t necessary to have more than this.
Does it Differ for Final Expenses Insurance?
Understand that a life insurance payout is usually quite significant. It’s a considerable sum of money that can set the people you leave behind up for life. On the other hand, final expenses insurance is designed to pay for a funeral and nothing more. Most families won’t have anything left over to actually claim. However, it generally works in exactly the same way as life insurance. You have one primary beneficiary and one contingency beneficiary. This is determined by your policy provider.
Who Should You Choose as a Beneficiary?
It doesn’t require much thought because the best person is always your immediate next of kin. For most policy holders, this is a spouse. After that, a good contingency beneficiary is the eldest child. It’s okay to designate someone as a beneficiary even if they are underage because they are still entitled to receive the money.
However, your will or policy will most likely stipulate that an underage child who receives an insurance payout will have the money locked away until they’re 21. Alternatively, it may simply be released in small chunks to pay a legal guardian for taking care of them. This is where it gets complex, so monitor the terms and conditions of your policy carefully.
You can opt for irrevocable beneficiaries, but this would prevent you from removing or adding a person to the policy later. Revocable beneficiaries give you a lot of flexibility. If you divorce your wife, for example, you don’t have to leave her on the policy. This is much more agreeable to many people because who really knows what the future could hold?
Take care when deciding on how to work out the issue of beneficiaries on both life insurance and final expenses insurance. This is a big issue that could alter the course of your family’s futures.
Featured image courtesy of FreeDigitalPhotos.net