Apart from being a requirement when taking out a life insurance policy, naming a beneficiary is important because it provides financial protection for the people you care about when you die, or are affected by one of life’s unfortunate circumstances.
It is important to note that a life insurance policy can have more than one named beneficiary and choosing that person or persons is an important step. A beneficiary is an individual or entity that will receive all, or a portion of the proceeds of an Insurance policy if you die. You may name or designate one or more individuals, including a trust or your estate, as a beneficiary.
You may name up to five persons as beneficiaries on your policy and you may change your beneficiaries at any time, once you chose the revocable option. The revocable option is the clause of the contract that gives you the permission to change your beneficiary at any time. If you had chosen the irrevocable option, you may not change the beneficiary without the consent of all the beneficiaries. Choosing a beneficiary is flexible, because the insured can pick their spouse or partner, children, or someone else.
You can also choose another family member, one or more business partners or the guardian you picked for your children. You can also name charities, businesses and other entities. If you have young children, another option is to set up a trust fund or trustee and name that person or entity as a beneficiary.
One added bonus of naming a beneficiary is that it also ensures that the family of the insured are not burdened by funeral or other expenses when he or she dies. One of the misconceptions about insurance is that a policy insures your life. However, what it does is cover you or your loved one against the financial difficulties you could face if you are affected by unfortunate events such as illness or death.
If that happens, the life insurance payout, which is the financial benefit of a life insurance policy, could help cover a number of financial needs for your life insurance beneficiary, including debt repayment and living expenses. It also could help provide the financial means to maintain the same lifestyle, even when you’re no longer around to help pay the bills. Providing additional financial security for your loved ones could be one of the best gifts you leave behind, and this is why naming a beneficiary is important because you are offering financial protection for them.
An insurance policy can also be included on the will. However, unlike a will, an insurance policy cannot be challenged because the policy is a binding contract between the insurance company and the insurer. Therefore, even if someone is upset about being left off the policy, or is dissatisfied with the amount allotted, they would be unable to mount a successful legal challenge.