Understanding the Life Insurance Beneficiary Rules will help you to make the right choice when you want to choose a beneficiary. Although every insurance company has its own rules governing its life insurance policies, there are general rules you should take note of.
Life Insurance Beneficiary Rules
One of the reasons why people buy life insurance is to financially protect the people they are going to leave behind when they die. This could be their spouses, children, relatives, or even charity.
If you buy a life insurance policy, you can add more than one beneficiary and they don’t have to receive an equal share of the death benefits.
What is a Life Insurance Beneficiary?
A Life Insurance Beneficiary is simply someone you name in your insurance policy to receive a death benefit. When you list someone as a beneficiary in your policy, you give them the authority to claim the death benefits after you die. You can name one person, two or more people, a charity, your estate, or a trustee as a beneficiary.
Basically, there are two types of beneficiaries. This includes the Primary beneficiary. This is the first individual who is authorized to claim death benefits. This could be your spouse, children, or other family members.
The other type is the secondary or Contingent beneficiary who is permitted to claim death benefits if the primary dies before or at the same as you. Having known this, the next section of this article will discuss the rules governing this policy.
Beneficiary Rules for Life Insurance
As earlier stated in this article, different insurers have different policies governing their policies. However, there are some basic rules and they are discussed below.
Life Insurance Beneficiary Rules for Spouses
In most cases, people name their partners or spouses are their first beneficiaries. After the death of your spouse, you have no right to file a claim if you are not listed as a beneficiary. However, you are protected if you lived in a community property state with your spouse.
The law governing the community property laws stipulates that both couples own any income they earned during the marriage equally as well as anything bought with the income. This buying a life insurance policy.
In the United States, there are nine community property states and including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington. If you reside in any of these states, you can file a claim as a spouse even when you are not a named beneficiary.
You can also exclude your spouse from receiving the death benefit if you want. To do this, you have to sign a Property Status Agreement. The last rule governing this policy is that a spouse can contest that the deceased had a mental issue when naming a beneficiary.
Life Insurance Beneficiary Rules After Divorce
When a marriage breaks up, there are some rules governing the policy. In a non-community state, the beneficiary can be changed after a divorce. But this is if the Judge approves.
This case is not so for the community property state. In a community property state, the death benefit payout will be determined by the duration of the marriage.
How to Choose a Life Insurance Beneficiary
When choosing your beneficiaries, you should consider those who depend on you financially. Also, you can consider those who will be in financial need when you die.
Other important factors to consider include those who will be responsible for your funeral expenses, those who will inherit your estate according to your will and anyone you will like to support with your wealth after you die.
This will help you choose the right person or people. If you are a philanthropist, you can also name a charity as your beneficiary.
What Right Does a Life Insurance Beneficiary Have?
You have the right to be informed by an insurance company that you are a beneficiary after the person dies. Also, you have the right to know the total amount of death benefit and file a claim if you want to. If the claim is denied, you also have the right to file an appeal.