Defining a Life Insurance Beneficiary – Motley Fool

When deciding how to buy life insurance, it’s important to consider how to choose a life insurance beneficiary. The beneficiary is the person or entity who will receive the death benefit. The beneficiary is the one who actually benefits financially from the insurance coverage.

Policyholders should choose a life insurance beneficiary who they wish to provide for financially. This could be a spouse, or it could include children, aging parents, or friends. Anyone who would be hurt financially after a death should be considered as a possible life insurance beneficiary.

If you’re married

Married couples must understand life insurance beneficiary rules. In most states, there is no requirement to name a spouse as a life insurance beneficiary. However, this is different in community property states. In community property states, married couples are considered to jointly own marital assets. A spouse is thus entitled to a life insurance payout even if someone else has been named as a beneficiary.

In these states, it is important for the spouse to provide written consent to name a different beneficiary if the policyholder wants the death benefit paid to someone else. This written consent should be provided before a death.

If you have children

Many people want to ensure their children are provided for if they pass. It’s important to understand life insurance beneficiary rules related to minors. Children can’t receive or manage life insurance proceeds until reaching the age of majority. Usually, this is 18 years old. Parents may also not want an 18-year-old receiving a large life insurance payout.

Parents can name a guardian or custodian to manage the funds for children. Or they can create a trust that receives the insurance payout. The trustee will manage the money until the children are old enough. Parents can also set certain other conditions on when the children can access funds in the trust.