About Life Insurance Beneficiaries

What is a Life Insurance Beneficiary?

A beneficiary is a person who receives the death benefits from a life insurance policy.  Proceeds of a life policy are received tax free in the hands of a named beneficiary.

Preferred Beneficiary

If the beneficiary is a spouse, parent, child or grand child, then they are considered to be the "preferred beneficiary".  If the insured has a preferred beneficiary then the benefit is protected from any creditors.

Primary Beneficiary

The "primary" beneficiary is the person who is the first choice to receive the death benefit. You might be able to designate more than one person as a primary beneficiary, dependent on the policy.

Contingent Beneficiary

A person who will receive the death benefit of a policy if the primary beneficiary dies before or at the same time as the insured is called the "contingent" beneficiary.

For example, should both a husband and wife die in the same accident, the death benefits would by default go to each estate, and creditors could make claims against the estates. However, a child could be the contingent beneficiary, in which case creditors could not make claims against the death benefit.

If the child is a minor, one needs to name an adult as a trustee to receive the funds in trust for the child, since insurers do not pay proceeds to a minor.

Choosing a Beneficiary

The following lists and briefly discusses possible beneficiaries of a life insurance policy.  This should only be used as a general guide line, and is merely informational in nature.

Spouse

The most common beneficiary is the spouse, for obvious reasons.

Child(ren)

Children can also be beneficiaries, and if they are over 21 years of age they do not require a trustee.

Parent(s)

Parents are often designated as beneficiaries, possibly for the given situations:

• You are single with no children, and want protection against funeral expenses.
• In case both you and your spouse dies, and parents will be taking care of the children.

Friends

Friends can be made the beneficiary of a life insurance policy.  This is common when the insured does not have immediate family.

Charities

Charitees can be made the beneficiary of a life insurance policy.  This is common when the insured does not have immediate family.

Estate

The estate can be named as beneficiary, in which case the proceeds are subject to probate fees.  Hence named beneficiaries are preferred.