Life Insurance: What Happens If There Are Co-Beneficiaries?

 

The purchase of life insurance is a common financial planning tactic for North Carolina families, providing financial protection for survivors when the family breadwinner has passed.  Your Greensboro life insurance coverage is something that can mean a world of difference to as husband or wife left behind as well as to children who may require financial support until they're able to support themselves.

A primary purpose of life insurance, whether it's whole life, term life or universal life, is to allow the beneficiary or beneficiaries to have continued financial support after they have lost the person who was previously providing that financial stability.  

The benefit received from a life insurance payout may be used wherever it's needed, whether that means paying off outstanding loans such as a home mortgage or taking care of funeral expenses.  As a father of small children, you may be taking out a Greensboro life insurance policy to ensure that, should you pass away unexpectedly, your family may continue living in a fashion to which they've become accustomed and have the funds needed to send the kids to college.

Beneficiaries

Part of taking out a life insurance policy is choosing and naming a beneficiary or beneficiaries.  This could be: 

• A person or persons
• Your estate 
• A charity
• A trust
• A business (as in key person life insurance)

The beneficiary is the person, persons or entity that will receive the proceeds of your life insurance policy when you pass.

There are two types of beneficiary designations:

Primary beneficiary - the person, persons or entity that will receive the proceeds of your life insurance policy at the death of the policyholder

Contingent (or secondary) beneficiary - only entitled to receive proceeds from the policy if the primary beneficiary dies before the policyholder

Multiple Beneficiaries

You may name more than one primary beneficiary if desired, in which case they will receive either equal portions or a stated specific percentage of the death benefit when you pass.  There are two ways to select multiple beneficiaries:

Per Stirpes - beneficiaries are designated by lineage, with policy proceeds being equally divided among beneficiaries and/or their surviving children

Per Capita - policy proceeds are equally divided among all beneficiary survivors.  Click here for a more detailed explanation of Per Stirpes and Per Capita designations.

If a beneficiary dies before the policyholder, he or she must be renamed as soon as possible.

Is it the Right Time to Buy Life Insurance?

Life insurance is a funny thing. You don't really want it until you need it, but if you wait until you need it to buy, then you've waited too long. Let's talk a little bit about the right time to buy life insurance.

Technically speaking, the very best time to buy life insurance is shortly after birth. The cost of a life insurance policy is directly tied to your age, becoming more expensive as each year goes by, so "the sooner the better," from a cost perspective, is the answer to when it's the right time to buy life insurance.

Insurance for Infants

While there are arguments both for and against a parent or relative buying life insurance for an infant, a whole life policy with accumulating cash value could, over the first 18 years of the child's life, amount to a substantial amount for someone graduating high school and about to go to college. At 18 years old, ownership of the policy can either be transferred to the insured or he/she can opt to cash out any accumulated equity. That policy, which may have been funded with a lump sum payment 18 years previously, could prove to be a very welcome source of income at an important time.

Insurance and Debt

A 20-something just out of college and just going into the workforce may, if without the needed savings, get a credit card to help with relocation expenses to and housing expenses for his/her new location. Anything charged on this new card is what's considered unsecured debt which, in the event of the cardholder's death, must be paid off by his or her estate. While it would be ideal for this person to take out an affordable term life insurance policy to cover the amount of this debt, the fact is that most individuals at this age are more concerned with the payment of current bills rather than taking on new ones. Plus, if you have no dependents for whom you're responsible, leaving behind a credit card debt may not be a big deal in your mind.

Spouse and Family

Once you've gotten married and started a family, things may change drastically in your mind regarding your financial responsibilities. With others now depending on your financial support for their standard of living, you'll likely feel obligated to take out insurance if you haven't already. The best time is now!

How Often Should I Review My Life Insurance Policy?

Conventional wisdom dictates that, as an insurance policyholder, you should review your coverage every 12 to 18 months. This includes your vehicle insurance, homeowner's insurance, life insurance, business insurance if you carry it, and any other policies you may have. It's important to have regular reviews of your life insurance coverage since our lives have a way of experiencing  changes fairly often.

You certainly don't want to get caught being underinsured nor do you want to be overpaying for coverage you no longer need, so it's just a prudent financial practice to conduct regular reviews, especially on your life insurance policy. You may find that nothing requiring a change to your coverage has occurred since the last review, but at least by checking you'll know for sure. Here's a partial list of events that typically calls for taking another close look at your coverage to ensure that it accurately reflects your current needs:

• You've gotten married, divorced or added a new significant other to your life. You probably want to not only take a look at your named beneficiaries but also your coverage amount.
• You've either had a child or a grandchild born or one or more of your children have recently left the nest.
• You've recently taken on new financial commitments such as buying a house, an automobile, recreational vehicle, etc. These additional debts could cause undue strain for your family in the event of your untimely death.
• If you've recently finished paying off some past debts, leaving less in the way of financial commitments, you may decide to adjust your amount of life insurance coverage downward.
• If your family income level has increased significantly since first taking out your life coverage you may have become used to a higher standard of living. This is something you'll want to consider as you review the amount of the death benefit on your policy.

Reviewing your life coverage annually may actually not be often enough if one of life's big events occurs sooner. Consider meeting with your agent whenever any of these occurs.