How Many Beneficiaries Should I Have?

Having a backup beneficiary, also called a contingent beneficiary, is a good idea. Many policy owners forget to update their policy when a beneficiary passes away. If there are no living beneficiaries, the insurance proceeds are left to the estate. Many of the financial advantages of life insurance evaporate whenever the estate is the beneficiary of a policy. Bottom line: always list a contingent beneficiary.

You can also split the insurance proceeds among several primary beneficiaries. This isn’t common on small policies, but it may serve a purpose on larger policies. Simply list out all the primary beneficiaries and what percentage they receive. Go to our contact us page if you have questions.

Choosing Beneficiaries

Find out how to choose the right beneficiary for your life insurance policy.

How do you choose a beneficiary for life insurance? If the policy owner and the insured are the same person, you can usually name anyone as beneficiary. If the policy owner and insured are not the same person, then insurable interest must be shown. Insurable interest is a fancy way of saying that a person will have a love loss or financial loss if you pass away. Some policies restrict insurable interest to a potential love loss.

Beneficiaries can use life insurance proceeds for any purpose so its important to pick a beneficiary that will likely use the money for its intended purpose. Naming a spouse as beneficiary is good, but keep in mind that many policy owners forget to change beneficiaries if there is a divorce. Policy owners can change beneficiaries as often as they want unless there is an irrevocable assignment. Naming minor children may seem like a good idea, but its not recommended. Life insurance companies cannot give life insurance proceeds directly to minor children. Instead, a court has to appoint someone to administer the money for the minor child. The administrator charges a fee, and the bank may also charge a fee if the money is put into a trust. You’re welcome to contact us with any questions.

Limited Pay Whole Life

Learn about a powerful type of life insurance called “limited pay whole life” that isn’t discussed very often by agents.

Many people put off buying burial insurance or final expense life insurance because they think death is a long way off and the monthly payments are better spent on other expenses. However, buying burial insurance early in life has its advantages. One obvious advantage is a lower price, and the price you start with is the price you keep forever. There is also a less obvious advantage. A product called “limited pay whole life” is usually unaffordable late in life, but it can be affordable earlier in life. Limited pay whole life is similar to making a car payment or mortgage payment because payments only have to be made for a set number of years before it is paid in full. With this type of product there is a finish line to making payments (usually 10 or 20 years), and after that you’re covered for the rest of your life without making any more payments. Lets say you are 45 years old and you don’t want to be paying on a life insurance policy when you retire at 65 because you’ll be on a fixed income. In this case, a limited pay whole life policy is the perfect solution. A policy started at age 45 can be paid in full by age 65. The 65 year old has life insurance coverage forever and doesn’t have to make payments in his or her retirement years.

Limited pay whole life is also good for children. Parents can purchase this type of policy for their children and have the policy paid in full in 10 or 20 years. Its one more way to make sure your children are financially taken care of, and your children will do the same for their children. It creates financial security for generations. We love questions, so please contact us if you have them.

The Right Amount of Coverage

Consumers try really hard to only buy what they need. Its good to only buy what you need for groceries because excess groceries go to waste. Life insurance, on the other hand, never goes to waste no matter how much is purchased. Even if a life policy is only meant to cover funeral expenses, any amount of coverage above that cost can be used by the beneficiary for other needs. Technically, the beneficiary doesn’t have to spend the insurance proceeds on a funeral; the money can be spent on anything the beneficiary desires. Its also good to error on the side of getting more than enough coverage because of inflation. People ask me all the time how much coverage they need for a cremation. I’m careful to only give rough estimates because one funeral home can have very different prices than another funeral home. $5,000 of coverage should cover a cremation and ceremony. Or you can get half the coverage if no ceremony is needed. Use this quoting tool to see what different amounts of coverage cost.

Policy Reviews

How often should you or your agent review a policy? Some policies such as universal life are high maintenance. Other policies such as whole life are low maintenance. Universal life allows flexible premium payments, which is too much freedom for some consumers. Not paying enough over an extended period of time can cause a universal life policy to cancel. Annual reviews of universal life help to make sure the premiums paid are not too low. Whole life only needs to be reviewed when there is a life event: marriage, birth, divorce, etc. Life events sometimes warrant a beneficiary change.