You know you need life insurance. At this point, you may have planned out what kind of policy is best for you and have calculated how much insurance your loved ones need to not only cover your final expenses but also to live without your income. The final question to answer is: who should you name as your beneficiary?
A beneficiary is the individual or individuals who will receive your death benefit after you pass on. Though it may seem like an easy decision, it is certainly a part of the life insurance process worth taking the time to consider carefully. First, ask yourself the intention of the policy. Who is the money intended to help or protect? This fundamental question will help to guide your decision.
Naming a Spouse as Your Beneficiary
Logically, most policyholders with spouses would name their other half as the primary beneficiary. The idea here would be to ensure that their spouse is taken care of financially and does not suffer a monetary burden from the loss of the policyholder. Spouses will most often be held responsible for any medical costs or other final expenses (i.e. burial) from the passing of the policyholder as well as any remaining debt from the policyholder. A life insurance policy with proper coverage should cover these expenses and make up for the loss of income in the household, if any. However, while selecting a spouse is the typical choice when applicable, policyholders do have other options for their beneficiaries.
Naming a Minor or Special Needs Dependent as a Beneficiary
Other policy holders purchase life insurance policies to care for their children or other dependents in their care, such as special needs relatives. So, it may seem to make logical sense that those individuals would assign their children/dependents as their beneficiaries. However, doing so can be more complicated than it seems. If this is a policyholder’s decision, they will need to work with their financial advisor and/or attorney to ensure they so in the most effective manner.
Naming a Charity as Your Beneficiary
As an alternative to listing an individual as a beneficiary, policy holders may choose to donate their death benefit funds to a predetermined charity.1 This option presents the death benefit to the selected charity in the form of a donation upon the policy holder’s death. Making a charity the beneficiary on an existing policy is just one way to donate through your life insurance. Policy holders also have the choice to make the charity the owner of the policy, which allows you to pay the premiums as gifts to the charity. Paid up policies, such as whole life policies, can be donated to a charity while the policy holder is still alive, which will provide a tax benefit for the policy owner. Be aware that each state may have different laws around using a charity as a beneficiary or owner of a life insurance policy. For more information on naming a charity as your life insurance beneficiary, check out this article from Life Happens.1
Regardless of who or how you decide to designate your life insurance pay out, the New York State Bar Association Insurance Program is here to help. Please feel free to reach out to our benefit specialists with your questions about your life insurance policy at .
1 Feldman, Marvin. “3 Ways to Help a Charity With a Gift of Life Insurance” (29 July 2019). Life Happens. Retrieved April 15, 2020 from https://lifehappens.org/blog/3-ways-to-help-a-charity-with-a-gift-of-life-insurance/