LifeInsurance Beneficiaries:

In Life insurance terminology, a beneficiary is the one who receives the proceeds of the life insurance in case of the insurer’s death. Designating a beneficiary is mandatory with life insurance, which can be a person, estate or organization.

It is also important to understand that you must keep your choice of beneficiary up-to-date in order to reflect your current situations and requirements. For example, in case of divorce you may want to change your beneficiary. Similarly, you need to change the beneficiary if he/she dies earlier than you – on a positive side; you may need to change your beneficiary when you have a new baby born etc.

Designating a beneficiary for your life insurance is always a critical and is often a very difficult decision. Sometimes you are faced with situations which would force you to make tough choices – and can even harm your existing relationships. A typical example would be, choosing between your wife and children with your other wife. So take your time, don’t be emotional and make your decisions based on realities.

Deciding the right beneficiary (ies) is dependent on your particular situation that may include your age, your financial status, your children etc. There are options in various life insurance policies that allow you to assign multiple beneficiaries as well.

It is advisable to name a contingent beneficiary for your life insurance policy. A contingent beneficiary is a person who gets the assets of the insured person in case the primary beneficiary passes away.

A guardian must also be designated, in case the beneficiary of your life insurance is a child. Choosing the right wordings for a beneficiary in life insurance is extremely critical and requires a high degree of clarity. An unclear or vague wording for naming a beneficiary can cause irreparable damage to the benefits of your loved ones – and could create severe effects on the way insurance proceeds are distributed.

For example, descriptions such as "husband" or "wife" as beneficiary could result in an ex-spouse in receiving proceeds intended for others. Similarly, by designating children by names will exclude the children that are born after the purchase of the insurance policy.

You can always change your Life insurance beneficiary in accordance with your changing situations and wishes as long as it is a revocable beneficiary. The beneficiary though cannot be changed, if you have originally designated him/her the status of irrevocable beneficiary in your life insurance. The only way to change a beneficiary in this situation is through the consent of the originally assigned beneficiary.