What happens if I don't name a beneficiary on my life insurance policy?

If you don't name a beneficiary, or if all named beneficiaries predecease you, the death benefit will typically be paid to your estate. This means the funds will go through probate, which can be a lengthy, public, and expensive legal process, delaying the payout to your heirs and potentially subjecting the funds to creditors and estate taxes.

Can I name multiple beneficiaries on my life insurance?

Yes, you can name multiple primary beneficiaries and multiple contingent beneficiaries. You must specify the percentage of the death benefit each primary beneficiary should receive. If you don't specify percentages, the payout will usually be divided equally among them.

Should I name my minor child as a direct beneficiary?

Generally, no. Minors cannot legally receive or manage large sums of money. If you name a minor directly, a court will likely appoint a guardian to manage the funds until the child reaches the age of majority, which can be costly and may not align with your wishes. It's usually better to establish a trust and name the trust as the beneficiary, with an adult trustee managing the funds for the child.

How often should I review my life insurance beneficiaries?

You should review your life insurance beneficiaries at least every three to five years, or immediately after any major life event. Key life events include marriage, divorce, birth or adoption of a child, death of a spouse or beneficiary, or significant changes in a beneficiary's financial situation or health.

What is the difference between per stirpes and per capita?

Per stirpes means that if a named beneficiary predeceases you, their share of the death benefit passes to their direct descendants (their children). Per capita means the death benefit is divided equally among the surviving named beneficiaries, and the share of a deceased beneficiary is divided among the remaining living beneficiaries, not their descendants.

Can a charity or a trust be a life insurance beneficiary?

Yes, both charities and trusts can be named as life insurance beneficiaries. Naming a charity is a way to make a significant philanthropic gift. Naming a trust offers greater control over how and when the death benefit is distributed, especially useful for minors, individuals with special needs, or complex estate planning goals.

Do life insurance beneficiaries pay taxes on the death benefit?

Generally, the death benefit from a life insurance policy is income tax-free for the beneficiary. However, any interest earned on the death benefit while it's held by the insurer is typically taxable income. If the death benefit is paid to your estate, it could be subject to federal or state estate taxes if your total estate value exceeds the exemption limits.

How to Choose a Life Insurance Beneficiary | One Percent…