If no beneficiaries are mentioned in an insurance policy, the insurer will check whether policyholders have made a will of succession. If there is a will, the insurance company will give the death benefit according to that. The immediate heir, such as a spouse, parents or children, will get that assured sum.
What Is a Beneficiary in Life Insurance and How to Choose?
One of the major motives of an individual behind purchasing a life insurance plan is to ensure a financial hedge for the family in case they pass away prematurely. Under such unfortunate circumstances, their family gets a lump sum death benefit.
Nevertheless, the insurance provider gives the death benefit only to the beneficiary. Before purchasing a policy, individuals must be aware of what a beneficiary is to ensure that the person receives their death benefit, thereby ensuring that their family stays financially protected after their unfortunate demise.
Who Is a Beneficiary in Life Insurance?
Difference Between Nominee and Beneficiary
What are the Types of Beneficiaries in Life Insurance?
1. Primary BeneficiaryA primary beneficiary is a person who will receive the death benefit in case the policyholder expires within the life insurance term. If that primary beneficiary is dead, others cannot claim the amount in their name.
2. Secondary Beneficiary
A secondary beneficiary or contingent beneficiary is a person entitled to receive the death benefit if the primary beneficiary is dead. Nevertheless, according to the rule for the life insurance beneficiary, a secondary beneficiary will receive the lump sum amount only if its primary beneficiary passes away before the policyholder.
Now that you have learnt what a beneficiary is and what their role is and what the types are, you should also be aware of whom you can make the nominee for death benefits.
Who Can Be a Beneficiary in a Life Insurance Policy?
Family MembersYou can choose any of your near and dear ones from the family as the primary and secondary beneficiaries of your life insurance policies. They can be your spouse or child, siblings, parents, etc.
The Estate ExecutorThere is also a provision for adding your estate as a beneficiary of your policy. In that case, you need to add the executor of that estate to the list of beneficiaries on behalf of the property.
Legal Parents of a Minor BeneficiaryIf you choose a minor as a beneficiary, you must add their parents as legal guardians. In such conditions, your chosen minor will be able to receive the death benefit only after turning 18 years old. However, the insurance company will not be liable to pay the death benefit to a minor if they have no legal guardian.
TrustsYou can also choose to entitle the trust you own as your beneficiary of the policy. You will have to add the trustee as a legal claimant of your life insurance policy’s death benefit.
Charitable TrustsA charitable trust can also be a beneficiary of your life insurance policy. It will get the death benefit after your demise.
When to Choose a Life Insurance Beneficiary?
How to Choose and Add a Life Insurance Beneficiary?
Here is all you need to know about how to add a beneficiary:
Step 1: Selecting the Right Beneficiary
You need to ideally choose the name of a person who is dependent on you financially. While selecting your beneficiary, you should think of the person who will take care of your family's financial responsibilities in case of your unfortunate demise. Nevertheless, as stated, you should also designate both primary and contingent beneficiaries on your policy.
Step 2: Enlisting the Beneficiary
Specify their names and other details on the application form. Your insurance company will accept them as your legal beneficiaries.
Step 3: Details to be Filled
Following are some of the details of your chosen beneficiaries that you will have to mention in the application form of your policy:
- Phone number
- Identity proof
Now, after understanding what a beneficiary is, you can realise how important it is to choose the right person. Nevertheless, as stated, you should ensure that you have included both the primary and secondary beneficiaries in your life insurance policy. This way, even if your primary beneficiary dies, the other one can claim the death benefit.
FAQs About Beneficiaries in Life Insurance
You can also change or delist them from your policy’s beneficiary list if required, especially if they pass away. However, it will be difficult to change an irrevocable beneficiary’s name without their consent.
An irrevocable beneficiary is a nominee whom policyholders cannot change without their consent. Furthermore, policyholders also need to notify irrevocable beneficiaries before delisting them.
Policyholders may need to update beneficiaries’ names after divorce or death. By changing their names, policyholders will ensure that the right person gets the sum assured.
Individual policyholders should ideally add both types of beneficiaries to their life insurance plans. This way, they can ensure that the right person will get financial assistance on behalf of your dependent family members.
Other Important Features of Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.