Life Insurance Beneficiaries – The Beneficiaries You Choose Are As Critical As the Policy You Select

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Life Insurance is a very important part of your financial risk management strategy. As a financial provider to your loved ones, it helps you to have peace of mind that your family’s financial needs will be addressed if the worst was to happen to you.

When you arrange life insurance, you should first decide who the beneficiaries would be should the worst situation occur and you die. Unfortunately, after your death you have no control over how the benefits of your life insurance policy are distributed to your loved ones. It is sad but true that not everyone is going to want to respect your wishes after you die. It is therefore critical that you choose your beneficiaries carefully. In the same way that you do when you write your Will.

It is important to clearly specify who your beneficiaries will be. If for example you designate your estate as the beneficiary, the benefits will be paid to the estate, and may be subject to your estate’s creditors. If you designate your spouse as the beneficiary, an ex-wife may file a claim. If you specify the beneficiary as “children of the marriage”, any children you have adopted, or your partner’s children from another marriage might get excluded. It is critical that you be specific about who the benefits are meant to be distributed to. Do not leave this critical component of the life insurance policy to chance.

Throughout your life your situation will change. In the early years, you may have young children that need a lot of financial support. They will have education, clothing, and living expense needs as they grow up. As you get older, your children may move onto higher education, and need some assistance as they make the transition from child to adult. For example, they may need assistance buying their first car, buying a house, getting married, etc. It is common place for parents to assist their children as they make this transition. What if you were not alive and able to help? In the later years, you and your partner will need to support each other and prepare for retirement. Do you both have enough money for the later years? You may choose to make investments that have significant financial commitments. For example, you may choose to buy investment properties, or shares, you may take out loans to help facilitate these investments. What if one of you was to die and the other could not maintain these financial responsibilities?

Because your situation will change over time, it is important that the beneficiaries you list in your life insurance policy are the ones that will need your financial assistance after you have died. Review your life insurance beneficiaries from time to time and ensure that the list reflects best those that depend on you for financial support.

You should also establish contingent beneficiaries. It may be possible that the primary beneficiaries die before you or die at the same time. The contingent beneficiary option is there for this situation.

The choice of a beneficiary is a very personal thing. No two people view the world the same way, or have the same financial situation. Each person will see the threats to financial security for the loved ones differently. They will have different opinions of what financial risk management really means. When you are ready to setup a life insurance policy to financially protect your loved ones, first discuss the risks and needs with your family.

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