- Anyone can be your life insurance beneficiary
- When you designate minors as beneficiaries, there are additional rules to observe
- You can change your beneficiaries at any time, as long as they’re not irrevocable
A life insurance policy is a legal contract between you (the policy owner) and the insurance company. A beneficiary is a person you name in the contract as a recipient of the proceeds from the life insurance after you’re gone.
Your beneficiaries are probably the reason you have the policy in the first place, so it’s essential to name them. Some state and policy rules can influence or restrict your choices, so be sure you know how the process works.
Selecting a beneficiary for your life insurance policy isn’t always easy. People tend to make costly mistakes that can be counter-intuitive to the policy’s goals. The beneficiary receives the death benefits if you pass while the policy is still in force. Ensuring you’re doing the right thing when designating a beneficiary is crucial.
There are no hard-and-fast life insurance beneficiary rules that dictate whom you can choose. You can easily change your beneficiary if you choose to do so for any reason. Life insurance beneficiary rules allow you to change your beneficiary after divorce, for example. If you designate minors as your beneficiaries, you must meet further conditions.
This post is your guide to choosing a beneficiary. Read it to familiarize yourself with how your life insurance company handles beneficiaries before you sign.
1. Your Life Insurance Beneficiary: Spouse or Child?
You can name anyone as your beneficiary, whether your child or spouse, but be sure to notify them. You must also furnish them with a copy of the policy document so they know they should file a claim when the time comes.
A life insurance beneficiary doesn’t have to be a spouse or child. It can also be a business, trust, charity, friend, or relative. Some insurance companies may limit you to a certain number of beneficiaries; in that case, you should be as selective as you can in compiling your list.
Life Insurance Beneficiary Rules for Spouse
In most cases, no requirements specify that you can only name your spouse as a beneficiary. You can choose whomever you want, but in Texas, at least, your spouse must waive their rights to being a beneficiary if you designate someone else as the beneficiary.
You must adhere to the rules outlined in the life insurance policy for the beneficiary designation or change to be valid. The insurance company must then receive, approve, and record the changes or designation.
Another scenario that restricts you from choosing your spouse as a beneficiary is when you have a divorce decree. It obligates you to name a specific person as your beneficiary, and if you designate your children as beneficiaries, you won’t be able to remove them later in favor of anyone else, including a new spouse.
Your surviving spouse automatically receives the insurance benefits after death if you don’t designate a new beneficiary. The proceeds may also go to your estate, depending on the insurance company’s outlined precedence, which governs who has the right to the benefits.
Life Insurance Beneficiary Rules for Children
Most people prefer to name their children as their life insurance beneficiaries. The only real downfall with this decision is that the payout process can be complex if you die when they’re still minors.
Explore these options to safeguard your children’s interests:
- Appoint a guardian: Legal guardians can receive life insurance proceeds on behalf of minors. You can choose a guardian before you die, or they can petition to be granted the designation after your death. Consult with a lawyer, as this process is complex and expensive.
- Put up a trust: Trusts are effective solutions for passing your money to your children. A trustee can oversee the funds and distribute them accordingly when you’re gone.
Both are solid options for passing your estate along to your children, so be sure to consult with a specialist to determine which may be right for you.
You don’t have to choose between your spouse and your children when figuring out your inheritance, and you don’t have to limit it to only them. It’s essential to consider what matters to you and explore your options with an expert.
2. Life Insurance Beneficiary vs. Will: What’s the Difference?
Beneficiaries differ depending on whether they’re named in a life insurance policy or a will. A life insurance beneficiary receives proceeds from the life insurance policy upon your demise. What the policy document stipulates is accessible, transparent, and final.
A will or trust is a legal document allowing you to instruct how you wish to have your assets distributed after death. The beneficiaries of your life insurance need not be the same as those in your will.
Texas is a community property state, so if you reside in that state, your spouse could be entitled to the assets in your estate and the benefits from your life insurance policy.
3. Can a Life Insurance Beneficiary Be Changed after Death?
Only you can change a life insurance beneficiary. Others can do little to change the designation when you’re gone. Changing a beneficiary is simple – you only need to request a beneficiary change form from your policy provider. Enter the updated information, capture the name of your new beneficiaries, and return the form to the company.
Some reasons you may want to change a beneficiary are:
- You got married and want to add your spouse as a beneficiary
- You got divorced and want to remove your ex-spouse from the policy
- You have children and want to add them to the list
- You want to adjust the life insurance beneficiary percentage because your children no longer rely on you financially
- A beneficiary dies, and you want to edit the designation
Changing beneficiaries can become complex if you have irrevocable beneficiaries. You can’t alter or remove an irrevocable beneficiary without their express consent.
It is advisable to inform all stakeholders before changing a beneficiary. Doing so will help prevent disagreements that arise when a policyholder dies.
Keeping Up with Life Insurance Beneficiary Rules
Make sure you’re not uninformed when choosing a life insurance beneficiary. You don’t want your money to end up with the wrong person when you’re gone. Working with a professional in estate planning can help you keep up with life insurance beneficiary rules and seal any loopholes.
The financial experts at Bogart Wealth can review your beneficiary selection process before you sign the policy. We can also guide you on other factors, especially if your beneficiaries are minors or you need to change the designation. Get started by contacting us to schedule a call with our team.