Designating a Life Insurance Beneficiary
An important aspect of maintaining life insurance as a parent is designating the proper beneficiary. A beneficiary is the person or entity who will receive the death benefit from your insurance policy. You have to be very careful about who you name as your beneficiary, as well as maintain the beneficiary's contact information with the insurance company, so that person can be notified in the event of your death.
Following are commonly-selected beneficiaries:
- Your spouse -- Logically, your spouse would be your beneficiary, unless he or she is so financially independent support isn't needed. Make sure, though, that you keep your policy up to date. If you divorce or remarry, be sure to update your policy to change your beneficiary's name.
- Your child or children -- It's natural to think about designating a child or children as beneficiaries, even if they are minors. However, a minor should never be made a beneficiary. A minor will not have the legal authority necessary to make financial decisions needed to execute an insurance policy, and they can't legally sign checks. If a minor is made beneficiary, the policy will go to a judge, which can tie up your death benefit at a time when it will probably be urgently needed.
- The trustee of a family trust -- A trust is a legal mechanism to protect your assets. If you name a trust as your beneficiary, the insurance policy becomes an asset within the trust upon your death. The person in charge of managing the trust (the trustee) should be someone who you believe will act responsibly on your family's behalf.