When looking at life insurance options, you may already have someone in mind as a beneficiary. A beneficiary is the designated person who will receive the death benefit from your life insurance policy in the event of your passing. Most of the time, a beneficiary is someone dependent on you financially or who would be in charge of your burial expenses. This could be your spouse or domestic partner, children, parents or others, but you may not know some conditions that apply to your choice. Before you officially appoint your beneficiary, here are some thoughts to keep in mind.

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Spouse or Domestic Partner

Your spouse or domestic partner is a common choice, as you both usually share funds and responsibilities, and the impact of your death on them financially would likely be significant. However, if you are thinking about naming someone else other than a spouse or registered domestic partner, check if your state has community property laws. Generally, community property states require that your spouse (and sometimes your registered domestic partner) gives consent before you can name someone else as the beneficiary. Additionally, make sure you update your beneficiary if your spouse or registered domestic partner were to pass before you or you divorce. Check with your insurance company or attorney if you have any questions about the validity of your beneficiary designation.

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Wanting to make sure your children are financially taken care of is something many parents have concerns about when selecting life insurance. If your children are of legal age, you are free to name them as beneficiaries, but minors cannot be beneficiaries. You will need to assign an individual to act as the custodian for their benefit, or you can set up a trust and appoint a trustee to handle the funds for your children until they reach the age of majority designated in the trust agreement. The age of majority is when a child is recognized as an adult by the law; though 18 is the typical age, the age can be different depending on the state and the terms of the trust. A trust or custodian is also a good option if you have children who need lifetime care. Consult an attorney to set up a trust.

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Relatives are also common choices for beneficiaries. If you are single and without children or have parents or siblings who are financially dependent on you, you can name them as a beneficiary. A relative beneficiary can manage your burial expenses and can also be a good choice as a contingent beneficiary if your primary beneficiary were also to pass away before or with you.

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Family members are not the only ones eligible to be a beneficiary. Depending on your state’s regulations, you can choose dear friends, a business, a charity and trusts. You can also name several beneficiaries as your primaries. For example, you could divide 75% of your death benefit between your three children, and the other 25% could be granted to your favorite nonprofit.

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No Beneficiary

So, what happens if you do not pick a beneficiary? Your death benefit would likely pass to your estate after going through probate.

More factors to consider are being specific in your beneficiary designation form, updating it when circumstances change and choosing between revocable and irrevocable beneficiaries. Simply writing spouse down is too vague. If you end up remarrying after a divorce, you will want to be clear about which spouse you mean. Including names and other identifying information like Social Security numbers helps reduce any confusion. Also, when circumstances change, make sure to keep your beneficiary designation updated with the new information and talk to your new beneficiary. For example, your original designation may only have your parents listed, but later in life you get married. You could update your beneficiary designation to add your spouse as well. In addition, be clear on if your beneficiary is labeled revocable or irrevocable. Revocable beneficiaries can be altered whenever, but similar to the community property state laws, an irrevocable beneficiary cannot be changed without that person’s prior consent.

Naming or changing a beneficiary is usually a straightforward process, but take time to really consider who you want. When accounting for those you could leave behind, be thoughtful about what works best for your family and loved ones.

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