5 ways to protect your life insurance beneficiary

To ensure that your loved ones get the death benefit payout, you need to take a few precautions when designating your life insurance beneficiaries.

Nupur Gambhir

Nupur Gambhir

Published May 29, 2020

KEY TAKEAWAYS

  • A life insurance policy should always list a contingent beneficiary to accept the death benefit if the primary beneficiary is no longer alive to do so

  • You can designate what percent of the death benefit each of your beneficiaries receives depending on their financial needs

  • Keeping your policy up to date and adjusting your beneficiaries with every big life event can prevent the death benefit from being paid out to your estate

The most important part of your life insurance policy is the death benefit — it’s likely why you’re purchasing a policy to begin with. But in order for your dependents to actually get the life insurance payout, you have to take the right precautions when you’re designating who your life insurance beneficiaries are.

And this isn’t doesn’t just apply to initially buying your policy — there are factors to be cognizant of throughout your policy’s term, which could be anywhere from 10-30 years. Keeping your policy up to date and being aware of some key details in beneficiary designation can protect your life insurance policy — and more importantly, the ones you love.

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Name a contingent beneficiary

When you’re designating your life insurance beneficiaries, you’re listing your primary beneficiary — or the person who will get the death benefit when you die. But what most people don’t realize is that they should also list a contingent beneficiary, who gets the death benefit if the primary beneficiary is unable to accept it, usually because they have died.

Without a contingent beneficiary to accept the death benefit if the primary beneficiary — or beneficiaries — can’t do so, the death benefit will be paid out to your estate, which could leave your dependents in a fraught financial position.

Determine if the death benefit is per capita or per stirpes

Is your death benefit per capita or per stirpes? When you’re buying life insurance, the death benefit will automatically revert to a per capita payout, and for most people, that works. But there are some people who need a per stirpes death benefit payout, and not having one can have severe consequences for their loved ones.

What does this all mean in the first place? A per capita death benefit pays out to all your beneficiaries equally. If you list two people as your beneficiaries and one of them dies, the living beneficiary gets the entire death benefit. But there are circumstances where this can be problematic — for example, if you list your spouse and your business partner as your policy’s beneficiaries and your spouse dies, then your business partner would get the entire death benefit. In this situation, if you had kids, your spouse would likely have used the death benefit to support them. But because your business partner would get the entire death benefit, your children would essentially get nothing.

That’s where a per stirpes death benefit comes in. If you list your spouse and your business partner as your policy’s beneficiaries and your spouse dies, your business partner still only gets the allotted percentage of the death benefit (in this case 50%, but this can also be adjusted within your account). The other half of the death benefit — which was meant to go to your spouse — would go to your beneficiary’s heirs, or your children. Specifying a per stirpes death benefit in such a circumstance guarantees that your children will still be financially secure, even if their guardian passes away.

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Determine what percent each beneficiary receives

If you list multiple primary beneficiaries on your policy and both aren’t meant to receive an equal split of the death benefit, then you will need to determine what percentage each beneficiary receives and specifically list that in your policy.

For example, if you run a business and want to leave 70% of the death benefit to your spouse and 30% to your business partner, you would want to designate this in your life insurance policy clearly so that your policy is paid out according to your wishes. If you don’t, they will receive an equal 50/50 split, which could leave your spouse on the hook for expenses that your life insurance policy was supposed to cover.

Update your policy regularly

You should update your life insurance policy with every big life change — such as having a child, going through a divorce, or experiencing a death in the family. As major life events occur, your coverage needs change, and not adjusting your policy accordingly can impact the people you are buying a life insurance policy to protect.

Even with the best of intentions, forgetting to update your policy can negate the purpose of getting life insurance coverage altogether. If you list your spouse as your life insurance beneficiary and they die, you once again return to the issue of having no one alive to accept the life insurance payout, which means it would go to your estate. If you have kids or any other dependents, this could prohibit them from ever getting the funds and jeopardize their financial health.

Set your beneficiaries up for success

What’s the point of a life insurance policy if your beneficiaries don’t even know it exists? The life insurance death benefit isn’t paid out by insurers automatically when you die, so your beneficiaries will need to file a death benefit claim in order to receive it. Policies lost in the abyss can be found, but you can save your loved ones additional grief by leaving them details about your policy from the get-go.

To initiate the claims process, all your loved ones will need to know is which life insurance company you purchased a policy through and your full name to locate your record and allow them to file a claim. (To file a claim, they’ll also need to prove their identity and provide a copy of your death certificate).

Ensure that the people you’re paying your monthly (or annual) premiums to protect actually get this protection by giving them clear and concise information about the life insurance policy you’re taking out.

About the author

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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