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.