Your life insurance beneficiary is the person who will receive the payout. This is often a spouse, parent, or child, but the decision isn't a simple one. Everyone must choose a responsible person as their beneficiary and another to have as a backup in case of unforeseen events. Here are some suggestions to help you make this decision.

Select the Leader

If the end were to arrive today, who would handle your funeral arrangements? Usually, unmarried adults will have parents, grandparents, or siblings that would take the lead. The person in the family most likely to direct everything and make the difficult decisions is a good choice for a beneficiary.

Your family may not have any involvement in your life. The choice in these circumstances could be a close friend or a long-time romantic partner. Any adult can become a beneficiary on a life insurance policy without changing a will. However, listing an unrelated loved one on a life insurance policy will not give them any other legal rights.

Remember a Pet

Single individuals without human heirs, or with heirs that will already receive an inheritance, may want to leave behind something for a furry friend that was a loyal companion. Pets cannot cash checks, so you need to make alternative arrangements. A pet trust is a legally binding financial arrangement. List a reliable human as the future caretaker of the pet and the trust.

Remember to choose what will happens with the rest of the trust once your pet passes away. You can leave the balance to the caretaker or request it go to a charity or other destination. Always discuss the situation with the person chosen to make certain they will take on the role.

Choose Several Recipients

You may be lucky enough to have multiple people that play an important role in your life. Thankfully, you can have more than one primary beneficiary on a life insurance policy. The policy setup can also include a per stirpes agreement that shares the money equally between all beneficiaries. If one passes away before you, their descendants would get their share.

Give to Charity

People that support a specific charity during their life may want to give one last gift. It is acceptable to list charitable organizations as beneficiaries. Contact the charity to make certain the gift is one they are happy to accept and to verify they are a 501(c) (3) organization. Charities need this designation to avoid federal income tax on the insurance payment. 

Make certain to have a contingent or backup beneficiary in case the charity no longer exists or accepts this contribution when you pass away. Another option is to select multiple charities as primary beneficiaries. In this scenario, if one charity closes, the rest split the proceeds from the life insurance.

Name Your Estate

You can leave your life insurance proceeds to your estate. After death, the funds will go into the probate process with all other assets and become divided among any heirs or other relatives. This is not usually the best choice because it can cause the money to become vulnerable to taxes and creditors.

The option works if you lack anyone you want to choose as a beneficiary, but you still need life insurance to avoid leaving parents or others with the responsibility of paying your final expenses. It also enables you to have a policy and to build value in it. A change in the beneficiary can take place later on after marriage or children arrive.

Life insurance policies can seem complex, but the time spent learning more will always become worthwhile. At American Quality Assurance Group, we can explain your options, like who can become a beneficiary, and help you make the right choices based on your needs. Contact us today for an appointment.