Life Insurance Beneficiary Rules

Life insurance may be an uncomfortable topic, but it is worthwhile.

You can choose one or more beneficiaries to receive a death benefit if you die after  you acquire a life insurance policy. If no beneficiary is designated, or if all beneficiaries die before you do, your estate will be the beneficiary of the life insurance policy. The profits of your life insurance will now be subject to estate administration. You shouldn’t go through the probate process if you don’t have to. If you are interested in designating life insurance beneficiaries, there are some life insurance beneficiary rules that you should keep in mind. Read on to find out more. If you still have questions, speak to a life insurance policy specialist at Santa Barbara Estate Planning and Elder Law for more information.

Your Life Insurance Beneficiaries Must Be Specific

When naming a beneficiary, it’s crucial to be explicit; otherwise, problems among your loved ones may arise. The information required may vary according to the recipient mentioned.

Still, in general, you’ll need the following information:

• Whole name
• Date of birth
• Address
• Social security number

More Than One Person in Mind to Be a Life Insurance Beneficiary? You Can Have a Primary Beneficiary and Contingent Beneficiary

Life insurance beneficiaries often fall into one of two categories: primary beneficiaries or contingent beneficiaries. If you die, you designate a primary beneficiary who will get the death benefit. This person is your first choice and the ideal person you want to provide for. The “backup” or contingent beneficiaries receive the death benefit if the primary beneficiary dies. Sometimes, the contingent beneficiary is the one who ultimately benefits. Having multiple beneficiaries becomes tricky, and the choice of who becomes the contingent beneficiary is personal. Speak to a life insurance beneficiary attorney at the Santa Barbara Estate Planning and Elder Law to decide who is best suited for each role.

Divide the Life Insurance Policy By the Percentage

You may not know how much is in your life insurance policy at the time of your death, as death is unpredictable. Stating exact dollar amounts is not recommended for this reason. For example, suppose you want to name family members as beneficiaries. In that case, we recommend that a percentage of the death benefit be allocated to each beneficiary nominated, or the death payment is split equally among all family members.

You should also consider indicating whether the life insurance proceeds should be paid to a life insurance beneficiary in one lump amount or over the course of a specified number of months or, for even more protection, have the death benefit distributed to your revocable living trust.  If your life insurance beneficiary is a teenager or you aren’t sure you can trust them to handle a large sum of money, you should choose this option. These tips go for whether you have a primary beneficiary in mind or multiple beneficiaries. Speak to Santa Barbara Estate Planning and Elder Law for more tips.

Remember to Update Your Life Insurance Beneficiary Designation After Divorce

You won’t be around anymore when this happens, but I’m sure you would be upset to know that an ex-spouse could receive a life insurance payout when you die. California is one of the community property states. California law has not passed legislation automatically removing a former spouse as a beneficiary upon divorce. We recommend, at Santa Barbara Estate Planning and Elder Law, that you remove your ex-spouse from the legal document, which names them as a life insurance beneficiary as soon as you are divorced.

Let’s consider community property laws in California. The whole life insurance policy is regarded as community property if you obtained life insurance during the marriage and away while still married. If money generated during the marriage was used to pay premiums, the spouse would get 50% of the death benefit. The named life insurance policy beneficiary would get the remaining 50% of the death benefit. If the policy owner bought life insurance before being married, then got married, and passed away while still married, the spouse would be entitled to 50% of the death benefit, which is determined by dividing the amount of the policy premiums paid before the marriage, and the amount paid after.

Minor Children Don’t Automatically Benefit as Life Insurance Beneficiaries

There may be certain issues that you need to be aware of and avoid when you name your minor as a beneficiary of life insurance. If you pass away before your child reaches the age of majority, the child would not be eligible to collect the life insurance payment immediately. A life insurance company will not release a policy payout to your minor child. The probate court chooses what to do with the money of a life insurance claim if a minor is named as the beneficiary. They will choose a legal guardian for the minor’s estate. While the court may try to have your child’s best interest in mind by choosing from other family members, they may not choose the person you would. Contact Santa Barbara Estate Planning and Elder Law to ensure your child can adequately use the death benefit.

Speak to a Santa Barbara Estate Planning Attorney Before You Create Your Life Insurance Policy

Make sure your death benefit is used how you intend it to be. Life insurance policies don’t have to be complicated. Contact a life insurance benefits lawyer at Santa Barbara Estate Planning and Elder Law for advice on how best to secure financial support for your family even after you are no longer here.