A life insurance beneficiary is essentially the person or persons that receive the benefit when the insured dies. For example, if you have a $100,000 life insurance policy, then the person you name as your beneficiary will receive the $100,000 when you die.
1.If a beneficiary is not named on your policy, then the money is paid to your estate. The money will be distributed according to how the rest of the estate is to be divided according to your will.
2.You will usually name your beneficiary on your application for life insurance. You can change it in the future by contacting your life insurance company or your life insurance agent. You also have the option of naming more than one beneficiary and can even give each beneficiary a specified percentage of the benefit. For instance you could leave 20% to each of 4 children and 5% to each of 4 grandchildren.
3. There are several benefits to naming your beneficiaries in your policy versus just leaving the policy to your estate:
1) Speed. In most instances, life insurance companies will pay the life insurance to the beneficiaries as soon as a claim is filed. Often times estate situations can take a while to resolve if there is a lot of property involved or disputes involving the estate.
2) Taxes. Life insurance benefits are usually paid to the individual beneficiaries without any taxes being owed by the beneficiaries. In some situations estate taxes are paid based on the size of the total estate before those benefits are paid out to those named in the will. Life insurance would just add to the estate and require more estate taxes to be paid.
3) Debts. If the insured dies with outstanding debts, then their life insurance beneficiaries receive the benefits and creditors do not have access to the money. If the money is left to an estate, then often times creditors and bill collectors will need to be paid before the estate is paid out to those named in the will.
As always, I recommend that you seek the advice of a trusted tax professional on issues involving income taxes and an estate attorney on issues involving wills. Please see my disclaimer at the bottom of the page for more information.
1.If a beneficiary is not named on your policy, then the money is paid to your estate. The money will be distributed according to how the rest of the estate is to be divided according to your will.
2.You will usually name your beneficiary on your application for life insurance. You can change it in the future by contacting your life insurance company or your life insurance agent. You also have the option of naming more than one beneficiary and can even give each beneficiary a specified percentage of the benefit. For instance you could leave 20% to each of 4 children and 5% to each of 4 grandchildren.
3. There are several benefits to naming your beneficiaries in your policy versus just leaving the policy to your estate:
1) Speed. In most instances, life insurance companies will pay the life insurance to the beneficiaries as soon as a claim is filed. Often times estate situations can take a while to resolve if there is a lot of property involved or disputes involving the estate.
2) Taxes. Life insurance benefits are usually paid to the individual beneficiaries without any taxes being owed by the beneficiaries. In some situations estate taxes are paid based on the size of the total estate before those benefits are paid out to those named in the will. Life insurance would just add to the estate and require more estate taxes to be paid.
3) Debts. If the insured dies with outstanding debts, then their life insurance beneficiaries receive the benefits and creditors do not have access to the money. If the money is left to an estate, then often times creditors and bill collectors will need to be paid before the estate is paid out to those named in the will.
As always, I recommend that you seek the advice of a trusted tax professional on issues involving income taxes and an estate attorney on issues involving wills. Please see my disclaimer at the bottom of the page for more information.
3 comments:
In most deferred compensation arrangements, there will be a provision for naming a beneficiary to receive deferred compensation after the executive has died. Like qualified retirement plans, IRAs and life insurance, the determination of who receives the benefits is made pursuant to the beneficiary designation rather than the executive’s will (unless the executive has named the estate as the beneficiary). The beneficiary designation is really a form of will, because it governs the disposition of assets at death. It should be planned as another element of the executive’s overall estate plan.
Cheers,
James
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Great!!Nice post on "Life Insurance Beneficiary".Now a days,almost every people are going for life insurance.But they don,t have such knowledge how to take benefits of the policy.I really appreciate the author for clear step by step information regarding beneficiary of life insurance.
Very well written post. This is one of the main term associated with life policy as it is the person who actually gets benefited from the policy when the insured person dies. You do have shared all the important points about a life insurance beneficiary. Thank you for posting.
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