It is something that most people try to put off until the last minute, but it can have grave repercussions if you do – in more sense than one. When you are writing your Will or taking out life insurance, you will be faced with the question of who inherits what when you pass away.
If you are married and have kids, the answer should be a bit easier to answer. But with marriage becoming less common and more people having merged families, choosing a beneficiary is not as straightforward as it used to be.
If you have never considered these complexities, don’t worry! In this article, you will be introduced to what you need to know about beneficiaries, how you should choose them, and what you need to talk to them about before signing on the dotted line.
Beneficiaries – who are they?
Starting with a broad definition, you may be asking yourself what is a beneficiary? In simple terms, they are the person or people that you want to receive the money that comes at the end of your claim with an insurance policy (called the death benefit – far from cheerful!) or at the end of your life in general.
You can name up to 10 people, a registered charity or the trustee of a trust. In most cases, people name relatives, their spouses, or a friend. Note that if someone isn’t named, certain parts of the money will not be tax-exempt, and it can cost your loved ones more. So, be sure to name at least one person or group!
While it is often portrayed in movies and on TV, your beneficiary cannot be your cat, dog, or pet bird. Instead, you will need to leave the money to someone, such as a trusted family member, to hold in the animal’s name. So don’t worry, Mittens or Rover won’t lose out if you get this bit right. It’s also worth noting that a beneficiary under the age of 18 cannot receive the money until they are 18 years old. Therefore, you can leave money to your children who are under this age; they just won’t inherit it for a few years should you pass away.
Choosing a Beneficiary
Firstly, you need to consider the purpose of your life insurance; the idea is that when you pass away, it will help your loved ones who rely on your income when you are no longer there. Typically, this will cover everything from paying for a house to any costs you may have left behind, such as debt.
Thus, there is a simple way to answer the question of who your beneficiary should be. Ask yourself who would be the most impacted by your passing.
Once you have identified who you want to leave your money to, if it is more than 1 person, then be sure to name exactly the precise amount you want to leave them.
Talking To Your Chosen Beneficiaries
When you have taken out a life insurance policy or written a Will, you should discuss it with those you will name/have named as your beneficiaries. What should you say? Well, generally, it is a good idea to tell them about the size of the policy, the company it is with, and where they can find the information about it should you pass away. If your life insurance policy is with your employer, be sure to tell them this and provide them with contact information.
Can I Change My Beneficiaries?
In most cases, yes, you can change the beneficiary of your life insurance policy. To do so, you simply need to contact the company with which you have the policy or talk to your employer if they are responsible.
In the case of changing the beneficiaries that you have in a Will, the process is very similar. Simply contact the group that oversees your Will and be sure to update them on the change. In both instances, the beneficiaries can be altered at any time.
Different Types of Beneficiaries
There are also different types of beneficiaries to consider alongside the primary.
Firstly, there is an irrevocable beneficiary, which simply means they cannot be removed from your insurance policy or Will without their consent. Always approach this option with caution, as if you were to divorce your irrevocable beneficiary, they would not immediately be removed from the policy.
Next is the revocable beneficiary. This is someone, a group, or a charity that can be changed at any time and is put into the paperwork to receive the lump sum of assets when you pass away.
Finally, there is the contingent beneficiary. This is someone who will receive the assets or life insurance policy if your primary beneficiary dies.
