CHOOSING THE LIFE INSURANCE BENEFICIARY

Getting a life insurance is definitely one of the best ways to protect your family financially, especially if something abrupt happens to you. How should policyholders choose the right beneficiaries?

Most parents name their children as the beneficiaries of their insurance policy. But the law prohibit insurance firms from handing out the money to minors. So who should be your life insurance beneficiaries?

If you are blissfully married, your husband (presuming he is responsible enough to handle financial matters) is obviously the best choice to be the primary beneficiary of an insurance benefit. What if you are a single parent or you are planning for the possibility you and your spouse both die abruptly? The best option is to assign a trusted adult (it can be a relative or a close friend) to manage the distribution of money for them.

When picking a good overseer, bear in mind you are placing a lot of trust and confidence in the person’s judgment. He or she has a lot of discretion when it comes to spending the funds. The person should also have the common sense to seek outside help when needed. The beneficiary can be the same person who will act as your children’s guardian in the event of you pass away.

There are two ways to manage the money from an insurance policy. One is to open a Uniform Transfers to Minor Act account is one of the ways to avoid unnecessary complications. Proceeds go directly into this account and the policyholder designates a custodian to oversee the disbursement of assets on your offspring’s behalf.

All states except South Carolina recognizes these account. Depending on the state, your son or daughter will receive any remaining funds once they reach adulthood. However, such accounts do not offer much flexibility. The account is most suitable if your death benefit is more or less $100,000 and the children are relatively young.

Another is creating a trust that becomes your insurance policy’s beneficiary. It gives you more discretion as to how and when the money is distributed. However, this is more expensive than a UTMA account. You normally need a lawyer to work on it, which can cost around $1,000. Also, you can stick to the formalized language available on the Internet or use legal software products such as LegalZoom.

You need to ensure the beneficiary paperwork from the insurer is precise, regardless of how you intend to set it up. If you have to amend the contract to indicate a different beneficiary, obtain a change-of-beneficiary form from your insurance agent. It is also imperative to name a contingent or secondary beneficiary, so that the proceeds can still avoid probate in case the primary recipient dies before or at the same time you do.