The Rights and Obligations of Life Insurance Beneficiaries

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Life insurance beneficiaries are those who receive the proceeds of the policy where they are mentioned, when the policyholder dies. A person taking life insurance policy can name as beneficiary anyone they wish, and as many persons as they wish, as long as the death benefit can be divided to all of them; however, family is usually the common beneficiary of a policy, and if not, then all measures must be taken to avoid legal complications. In what follows we are going to tell you more about beneficiaries, and about their rights and obligations.

There are two main types of life insurance beneficiaries, and they differ thus:

  • Primary beneficiary – This person is the first mentioned on the policy, and he or she receives the death benefit of the policy when the policyholder dies; this happens only if all the premiums have been paid on time and the policy is still valid and, of course, if the beneficiary has not deceased before the insured.
  • Contingent beneficiary – This is also called a secondary beneficiary, because he or she is written in the policy in case the first beneficiary dies before the insured; if that happens, then upon the death of the insured, the contingent beneficiary is entitled to the death benefit.

However, there can be cases where the policyholder makes an agreement with the insurer, that the death benefit be paid to the beneficiary in installments, like a monthly annuity; if this primary beneficiary deceases without having taken all the benefits, then the rest of the proceeds can go to a secondary beneficiary. That is why it is sometimes recommended to have several levels of contingent beneficiaries on the policy, especially if its value is high and if the beneficiaries themselves reach a venerable age upon collecting the death benefit.

Furthermore, the life insurance beneficiaries on the policy can either be an individual, a person, or a class designation, such as “the children of the insured”; these situations however must be dealt with care, so no complications arise. If, for example, the children are already adults living separately, they might get into legal disputes over the division of the money. That is why legal counsel is always recommended for situations like these. There might also be cases where the insured has legal children, adopted children, or children with a former spouse; in this case, specifying exactly which of these children are to be beneficiaries, and in which way they are to be beneficiaries, is essential. When the beneficiaries are minors, then a legal guardian must be appointed; insurance companies don’t like to distribute the money directly to a minor, so they will ask you to appoint a guardian, or appoint one themselves.

Ideally, that guardian would be one of the spouses, the one still alive, or a family member. Other things that should concern life insurance beneficiaries are the methods of distribution for the death benefit, which can take place in one of two ways:

  • Per stirpes distribution – In this case, the policy mentions that the benefit is to be divided by branches of the family; in theory, that means if the policyholder had two children, the benefit would be divided to them. If they have grandchildren as well, and one of their parents has died, then each branch of the family gets an equal share, and the grandchildren have to divide it once more among themselves.
  • Per capita distribution – This type of distribution means “by heads”, and it means that each stipulated beneficiary receives from start an equal share of the benefit. Both children and grandchildren of the beneficiary receive an equal sum of the money.

These are just some of the things that life insurance beneficiaries must be aware of; this information is general however, and it may not apply to all specific cases, which is why you need to consult your representative and ask for life insurance quotes as well before taking any major decisions.

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