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.

Life insurance is a contract between the insurer and policyholders. Due to this contract, an insurance company is liable to pay a lump sum death benefit to the policyholder’s chosen person or nominee if they pass away prematurely within the policy term.

The insurance company is obliged to pay the death benefit only to the nominee, even if it is against the will of a policyholder’s family. On the other hand, the beneficiary in a life insurance plan is a person whose financial interest concerns policyholders. A beneficiary can also be a nominee of a life insurance policy. It usually refers to the legal heirs of the insured individual.

There are two types of beneficiaries in a life insurance policy, as listed below:

1. Primary Beneficiary

A 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.

It is solely your choice whom you will keep as beneficiaries of your life insurance policy. Following are some entities you can mention as your primary and secondary beneficiaries:

Family Members

You 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 Executor

There 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 Beneficiary

If 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.

Trusts

You 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 Trusts

A charitable trust can also be a beneficiary of your life insurance policy. It will get the death benefit after your demise.

You have to choose the beneficiaries of your life insurance policy before its term commences. It is essential to mention their names while filling up the application form. In that form, you need to mention details like their name, contact number, address and relationship with you.

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:

• Names
• Address
• 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.