What is a Beneficiary?
A beneficiary is the individual or entity (such as a trust, organization, or estate) named by a policyholder to receive the proceeds from a life insurance policy upon the insured’s death. Beneficiaries are integral to life insurance, as they ensure the benefits of the policy reach those whom the policyholder intends to support financially.
In the context of Indexed Universal Life Insurance, Whole Life Insurance, Term Life Insurance, or Senior Life Insurance, a beneficiary is generally assigned by the policyholder at the time the policy is purchased. The policyholder can choose primary beneficiaries, who will receive the payout first, and contingent beneficiaries, who will receive the benefits if the primary beneficiary is unable to do so. This flexibility allows the policyholder to tailor their plan to suit family needs, charitable goals, or other financial objectives.
For instance, in a family scenario, a spouse or children are commonly named as primary beneficiaries. Additionally, the policyholder can designate percentages of the payout to be divided among multiple beneficiaries. Naming beneficiaries ensures a smoother transfer of financial benefits without going through probate, which can expedite access to funds for loved ones in the event of an unexpected death.
To maximize the benefits, policyholders should periodically review and update their beneficiary designations to reflect changes in their lives, such as marriage, divorce, or the birth of a child. This process can safeguard the policyholder’s intent and provide peace of mind that their loved ones will receive the intended financial support.