How Do I Select a Beneficiary for My Life Insurance?

Suzanna De Baca -- Expert Business Source, 4/30/2007 6:40:00 AM

If you have a life insurance policy, you must select a beneficiary.  A beneficiary is the person or persons who will receive the death benefit after you pass away.  While that sounds like an easy enough task, once you’re facing the forms it can be confusing. Here are some explanations of beneficiary designation terms to help you understand how to navigate this selection process.

Revocable vs. Irrevocable:  Revocable simply means that you can “revoke” your choice and change your mind, and irrevocable means the opposite.  So, a revocable beneficiary is one that you may change in the future.  For example, if you are married and have named your spouse beneficiary but were then divorced, you may want to change your beneficiary from your ex-spouse to someone else.  A revocable beneficiary designation allows you to easily change who will receive specific benefits.  If, however, you chose an irrevocable beneficiary, you cannot revoke your decision without the written permission of your named beneficiary. 

Multiple Beneficiaries:  You may choose only one person as your beneficiary or you may choose multiple beneficiaries.  In the case of multiple beneficiaries, you may designate for the individuals to receive the benefit “per capita,” a Latin term which means “per head, or “per stirpes,” a term which means “by the branch,” or to the family group.

Here’s an example. If you have three daughters, Betty Cindy and Linda, you may want them to all receive an equal share.  But if you name “all my children,” as your beneficiary, how will proceeds be distributed if one of the beneficiaries predeceases you?  If Betty dies before you, do you want the proceeds to go equally to Cindy and Linda – “per capita”, or to Cindy, Linda and Betty’s estate – “per stirpes?” 

Order of beneficiaries:  As in the example above, you can select more than one beneficiary, but you can also stipulate a primary, contingent and tertiary beneficiary.  Primary is the first person in line to receive the death benefit.  A contingent beneficiary would be the person who receives the benefit if the primary beneficiary has passed away, and the tertiary is the third in line.

Trusts and Estates: A trust or estate can be named the beneficiary of your life insurance policy.  However, if the estate receives that asset, it becomes subject to creditor claims.  Trusts are often established and named beneficiary for children or heirs who have special needs or for the benefit of minor children who are not old enough to make legal or financial decisions.

The selection of a beneficiary for your life insurance is easier than it sounds, so don’t be intimidated by all the legal language in a policy.  Your insurance agent, legal, or financial advisor should also be able to help you interpret policy language to get the results you want.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member NASD, SIPC.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.