WEDNESDAY, OCTOBER 27, 2021
If you are thinking about buying life insurance, then you will likely need to involve several people in your decision. First, there are those whose lives will be insured under the policies. Second, there are those who will receive the policy’s payout when a claim is made. Respectively, these are the policy’s insured(s) and beneficiary. How do they relate to each other?
In this blog, we’ll take a look at some of the commonly asked questions that center around insureds and beneficiaries. When you are ready to get a life insurance policy, don’t hesitate to contact one of our agents for help setting up the right coverage for your needs.
Who is an Insured?
Life insurance assigns a particular monetary value to an individual’s life. That individual is the policy’s insured party. The value reflected in the policy, called a death benefit, might reflect the insured’s net worth, income or other financial obligations. That way, when this person dies, their financial contributions to their family and others will not disappear completely.
For example, when you are young and starting a family, you might worry about what will happen to your children if you die before you are able to put them through college. If you buy a life insurance policy on yourself, then you become the insured. Therefore, on your death, your family can receive a sum of money to help them continue to support themselves.
Who is a Beneficiary?
Though some life insurance policies allow you to withdraw money and cash value from your policy during your lifetime, you must die to initiate the death benefit. Therefore, you won’t be able to receive the policy’s money yourself. You must name someone else to receive the money, and this person is your beneficiary.
After your death, the beneficiary is the person who will file the claim against your life insurance. Usually, they will have to file the appropriate documentation with the insurer to verify the death. Additionally, an investigation into the death might take place to ensure that the policy can pay the beneficiary. Afterwards, the beneficiary will receive the money of the death benefit.
Who can be an Insured?
Life insurance is a very sensitive piece of protection. After all, it will pay when someone dies, and there are plenty of real-world examples of fraud and murders that were committed to receive a life insurance payout. Therefore, not just anyone can buy a life insurance policy on anyone else.
The person who buys a life insurance policy does not necessarily have to name themselves as the insured. For example, a husband might buy a policy and name his wife as the insured. Or, an employer might take out a policy on one of their executives. However, no stranger can take out a policy on you. Someone who wishes to insure your life must have an insurable interest in you. They also usually must notify you of your status as the insured.
Almost anyone can be insured on a life insurance policy. However, you might not qualify for all policies. Insurers will look at factors like income, occupation, overall health and other risk factors to determine your eligibility for a plan. Some of these might disqualify you from certain coverage.
Who can be a Beneficiary?
If you buy a life insurance policy on yourself, then you are generally able to name almost anyone you want as a beneficiary. This might be a spouse, child, close friend or even a charity.
Still, there are some limitations to this rule. For example, you generally cannot leave a life insurance policy to a child who is still a minor. Additionally, if you do not establish rules on your policy, then the beneficiary might be able to use the money freely.
To remedy this risk, you might be able to establish rules that place the death benefit in a trust fund. The trust will then dictate that the money can only be used in ways outlined by the trust. A trustee will manage these funds in the way required.
Usually, you must notify someone that you plan to name them as a beneficiary on a policy. However, ask your agent about whether your beneficiary is revocable or irrevocable. A revocable beneficiary is one that you can change at any time. However, to change an irrevocable beneficiary, you must receive the previous beneficiary’s permission first.
In many cases, you can name multiple people as beneficiaries on your policy. Therefore, if you want to name both your spouse and adult children as beneficiaries on your plan, then each will receive equal shares of your death benefit.
However, you might also choose both a primary beneficiary and contingent beneficiaries. The primary beneficiary is the person who will be first in line to receive the death benefit. However, if they are for some reason unable to do so, then the contingent beneficiary receives the money next.
Life insurance beneficiaries are those who stand to gain financially from a policy payout. Their needs might actually influence the policy value that you choose. Insureds, however, are those whose lives are insured, and their death will determine when a policy pays out. It’s imperative that you give each position careful thought when deciding who to name on your policy.
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